Employment groups say IR35 will harm contractors and businesses

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Employment bodies have warned Rishi Sunak, the new UK chancellor, that the upcoming IR35 reforms will damage the economy and should be suspended.

The legislation, aimed at eradicating the tax advantages of providing services via a limited company for contractors that are not truly in business on their own account, is set to expand into the private sector from April, with expert groups cautioning that the changes will see a third of self-employed contractors stopping contracting due to concerns about being non-compliant. HMRC estimates that bringing more workers under the guidelines will draw £3.1bn in additional tax revenue over the next four years.

Deputy director of policy at the Association of Independent Professionals and the Self-Employed (IPSE), Andy Chamberlain, has suggested the reforms could have “disastrous consequences”, saying: “The changes to IR35 due in April are a clear and imminent danger not only to contractors, but also the businesses that engage them and the wider economy.”

A key area of the reforms will see the responsibility for carrying out IR35 determinations move from contractors to end clients, with this change leaving businesses liable for unpaid taxes if one of their contractors is found to be ‘inside IR35’. Neil Carberry, CEO of the Recruitment and Employment Confederation, said Mr Sunak should work more closely with firms to protect the freelance sector. He commented: “Lots and lots of companies, because they are unsure about how to abide these new IR35 rules, are sitting backing and saying: ‘We are not taking contractors on’.”

A trend has emerged in recent months for businesses, such as Northern Trust and Royal London, to either apply blanket bans to their use of limited company contractors or assess them all as being “inside” IR35, in a bid to avoid being hit with a significant tax bill.

After hearing the concerns of businesses, the Government announced a review into the reform’s implementation in January, with financial secretary to the Treasury, Jesse Norman, saying: “We recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules. The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.”

Mr Norman was quizzed about IR35 in the House of Commons recently by Labour MP Jessica Morden. He described recent moves taken by firms to payroll their contract workforce as an acknowledgement of so-called “disguised employment”, but refused to associate it with ‘blanketing’, saying: “We are not aware of blanket determinations being made”.

However, Elizabeth Kent, chief operating officer of Bishopsgate Financial, directly contradicted Mr Norman’s assessment, saying a large number of valuable consultants are being discouraged by firms taking the blanket approach: “In practice, most organisations [we know of] are applying a blanket ban on PSCs … This is mainly down to large organisations not wanting to take any risk. The implication of that is there are consultants who are truly working outside of IR35… who are no longer able to use their limited company.”

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