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The incoming private sector IR35 reforms are conspiring to ensure the genuinely self-employed are losing work, while forcing compliant limited company contractors to exit the market, chancellor Sajid Javid has been warned in an open letter.
The document is signed by a dozen contracting stakeholders and representatives from the freelance sector, and is being published today ahead of an anti-IR35 protest march taking place at the Houses of Parliament.
The signatories include trade associations, contractor consultancies and media partners, and the letter details their concerns about the on-the-ground impacts the reforms are already having, despite the fact they do not officially come into force until 6 April 2020.
From this date, all medium-to-large private sector organisations will assume responsibility for determining how the contractors they engage with should be taxed, based on the work they do and how it is performed.
Previously, it was down to contractors to assess for themselves whether the way they work means they should be taxed in the same way as salaried workers (inside IR35) or off-payroll employees (outside IR35).
As detailed in the letter, this shift in responsibility has had a number of unintended consequences, as private sector firms look to offload the administrative burden the change will impose upon them in one of two ways.
Some – as documented by Computer Weekly – have sought to introduce blanket bans on the use of limited company contractors to absolve them from needing to assess the tax status of any self-employed staff they engage.
Finding new roles
Others companies, meanwhile, have declared that all outside IR35 contractors on their books will need re-engage with the firm on an inside IR35 contract before the reforms kick in. “Already, many contractors are reporting that they have lost their roles; others are now finding it difficult to find new roles,” the letter states.
These courses of action are “devastating” the contracting landscape, it goes on to say, and has resulted in “genuinely self-employed people losing work opportunities, while clients themselves are losing vital, flexible expertise,” and “entirely compliant contractor businesses have to close”.
This, in turn, is resulting in hardship for some, as contractors who move inside are seeing “huge cuts” in pay, it continues.
At the same time, there are also mounting concerns that the push for contractors to be re-engaged on inside IR35 contracts, which see them taxed the same as permanent employees, but receive none of the same benefits, will transform them into “zero rights” employees.
“This is grossly unfair and must not be allowed to happen,” the letter states. “We urge you to ensure that no-one pays taxes as an employee unless they have the rights and benefits of employment.”
In light of all these impacts and the risks posed to contractors by the reforms, the signatories said the government must call a halt to the reforms coming into play now.
“It is now absolutely clear that the impact of this ill-considered legislation is very different from the impact predicted by the Treasury and HMRC,” the letter states. “With so many unexpected consequences already coming to light, it is now – in our view – essential that the government pauses this legislation before it is too late.”
Read more about IR35
- 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.
- GSK contractors that have received “scaremongering” letters from HMRC, urging them to review their engagements with the company from an IR35 perspective, are being urged not to panic, as the missives have no legal basis, claim experts.
The letter adds: “Delaying for 12 months would provide an opportunity for us to work with government and other experts on devising more transparent, understandable rules that would protect Exchequer revenue while also enabling the flexible market to flourish.”
Such a delay would provide the government with sufficient time to conduct a “proper review” of the legislation – in addition to the one that is already underway – but focused on ensuring the roll-out continues as planned, it adds.
“We, the contracting and freelancing sector, are ready to sit down and work with you to at last work out how best to recognise contracting and freelancing in the tax system, to encourage dynamic, flexible working and providing skills needed by many businesses,” it continues.
“We urge you to delay and work with us before it is too late and the sector – and UK economy – are damaged.”
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