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The Conservative government must urgently make good on its pre-election promise to review the IR35 tax avoidance reforms to allay suspicions that its late-in-the-day pledge was simply a ruse to win the contractor vote.
That is the view of several contractor community stakeholders in response to the Conservative Party winning a solid majority government in the General Election.
Just over 10 days before the election took place, chancellor Sajid Javid confirmed that the Conservatives would re-evaluate plans to extend the IR35 reforms to the private sector in April 2020, as part of a wide-ranging review into the support it offers self-employed individuals.
The pledge did not feature in the Tories’ election manifesto, and was notably made public after the Liberal Democrats, the Scottish National Party (SNP) and the Labour Party all made pre-election commitments to undertake a review of the proposed reforms, should they come to power.
Now there are calls for the Conservatives to follow up their pledge with decisive action, and prove to the contractor community that it is committed to reviewing plans to extend the IR35 reforms to the private sector.
“The likelihood is, many freelancers and contractors will have voted Conservative, based on the party’s IR35 promise,” said Seb Maley, CEO of contractor tax consultancy Qdos. “The government now has a responsibility to honour its pledge to hold a genuine review of the reform.
“Boris Johnson must act now. A review of IR35 reform has to take place before April’s roll-out.”
At the time of writing, the newly formed government has set out its intention to deliver a Budget in February 2020, which could give it an opportunity to announce any changes to the IR35 reforms.
But if there is a feeling within government that conducting a review and acting on its recommendations will not be possible before the April 2020 start date, it must consider a postponement, said Julia Kermode, CEO of the Freelancer & Contractor Services Association (FCSA).
“If they don’t delay, then the promise [of a review] was nothing short of an arrogant and disingenuous move to secure votes,” she said.
“Many businesses have already invested heavily in preparing for the changes and, given the legal requirement for reasonable care, it is unrealistic to press pause for a potentially meaningless review to take place. If the government wants to avoid utter chaos and shambles, businesses need clarity now.”
While uncertainty persists over the potential review, Maley said contractors and private sector organisations must carry on with their preparations for April 2020 regardless.
“While a review is a sign of progress, it doesn’t mean the changes will be scrapped,” he said. “Therefore, contractors, recruitment agencies and end-clients must continue their preparations.”
This is because currently, medium to large private sector organisations are on course to assume responsibility for deciding whether the contractors they engage with should be taxed in the same way as salaried employees (inside IR35) or as off-payroll workers (outside IR35) from 6 April 2020.
An inside-IR35 designation means they will be liable to make pay-as-you-earn (PAYE) tax contributions and pay national insurance, as a permanent employee would, whereas an outside-IR35 designation exempts them from having to do so.
Currently, it is down to private sector contractors to self-declare which side of the IR35 regulations their engagements fall on, and there are already signs that the shift in responsibility towards organisations is having a negative impact on the contractor community.
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- Lloyds Banking Group is to phase out its use of contractors that engage with the firm via personal service companies in preparation for the IR35 tax reforms being extended to the private sector, Computer Weekly has learned.
- Barclays is understood to have notified line managers via email on 30 September 2019 of its plans to phase out use of limited company contractors, ahead of the IR35 private sector reforms coming into force in April 2020.
- Pharmaceutical giant GSK confirms limited company contractors will be phased out from its workforce from early 2020, as it rushes to comply with the private sector IR35 reforms.
As reported by Computer Weekly earlier today, pharmaceutical giant GlaxoSmithKline has confirmed that it will phase out its use of limited-company contractors in early 2020, in anticipation of the reforms coming into force next spring.
Meanwhile, a number of financial services institutions – including Barclays, Lloyds Bank and HSBC – have also taken a similar stance in the pursuit of IR35 compliance.
These developments have led to a surge in the number of contractors seeking to wind up their limited companies, according to John Bell, founder and senior partner at insolvency practitioners Clarke Bell.
Individuals who take this course of action may be able to continue contracting through umbrella companies and engage with clients on PAYE terms, or take on a permanent role somewhere, but these options may not prove a good fit for everyone.
“We need a review into IR35 as a matter of urgency as the uncertainty is having a crippling effect on the livelihoods of many contractors, as well as impeding hiring decisions by firms,” said Bell.
“We are already seeing an increase in the number of contractors turning to us for advice on closing down their limited companies faced with the concerns that the legislation will have on their work and careers. Decisive action, not platitudes, is what is needed now.”
At the same time, Dave Chaplin, CEO of tax consultancy ContractorCalculator and director of the 2,000-strong Stop The Off-Payroll Tax campaign group, said a review of the reforms is urgently required because, in their current form, they are “unfairly burdensome”.
That is why so many firms are seeking to sidestep the requirements and responsibilities that the reforms will impose on them by curtailing their use of contractors.
“The off-payroll [IR35] rules in their current proposed format create an unfairly burdensome scenario, which has the potential to poison the entire engagement process between contractor, client and agency,” said Chaplin.
“It will force thousands of contractors into false employment, expose self-employed contractors to excessive taxation, as well as depriving UK plc of essential access to talent and key skills and driving up project costs.”
To prevent these scenarios, Chaplin said prime minister Johnson must act now by committing to putting the reforms on hold, conducting a review into them and then setting about working with the contractor community to find a way forward.
“I would urge the prime minister to now confirm that he will conduct a proper review, put the off-payroll roll-out on hold and work with the contracting community and stakeholders on devising how best to recognise contracting and freelancing in the tax system,” he said. “An off-payroll review should be put right at the top of his agenda as he takes up office again.”
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