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Budget 2020: Omission of IR35 from chancellor's speech sparks fury from contracting groups

Despite repeated warnings of the damage the incoming IR35 reforms stand to do to the UK economy, contracting groups hit out at the government's decision to press ahead with the changes

The government’s failure to use today’s Spring Budget to call a halt to the incoming IR35 tax avoidance reforms could pave the way for “no-rights employment” to become the norm across UK PLC in the years to come, it is feared.

The lead up to the event, which saw the new Chancellor of the Exchequer Rishi Sunak announce a £30bn package of measures to support the UK through the Covid-19 outbreak, has seen the government face repeated calls to reconsider its plans to extend the IR35 reforms to the private sector from 6 April 2020.

However, the chancellor made no mention of the reforms during the Budget speech on 11 March, but the accompanying Budget Red Book confirmed the reforms are set to go ahead as expected without delay from April.

“The government believes it is right to address the fundamental unfairness of the non-compliance with the existing rules, and the reform will therefore be legislated in [the] Finance Bill 2020, and implemented on 6 April 2020,” the book states.

The omission of IR35 from the Budget speech has incurred the wrath of Julia Kermode, CEO of the Freelancer and Contractor Services Association (FCSA), who described it as “insulting” to the contractors, trade bodies, MPs and other stakeholders who have previously raised concerns about the reforms.

“I am shocked that he made absolutely no mention of IR35 or the off-payroll reforms in his Budget speech, except perhaps veiled in his comment with regards to dealings with tax avoidance and compliance when introducing his public sector spending plans,” she said.

“The omission is insulting, to say the least for our sector; not just to the many thousands of professional contractors who will be affected by the off-payroll reforms, but also to the House of Lords, trade bodies, and the many MPs that have raised their concerns about these reforms to the government.”

All of these parties have repeatedly spoken out about the harm the changes will potentially do to economy and the productivity of the UK’s flexible workforce, as private sector firms get to grips with the new set of responsibilities the reforms are set to confer upon them.

And while the reforms do receive a passing mention in the Red Book, the fact the government is pressing ahead with them regardless displays an “arrogant disregard for all the many sensibly argued submissions made” by the aforementioned parties, she added.

“Recently, HMRC published its review of off-payroll in readiness for implementation in April. Included in this review was a commitment to commissioning external research into the impact of the reforms after six months of implementation,” she said.

“Now that we have absolute confirmation that the reforms will come into effect, the FCSA is calling for HMRC to undertake this research independently, ensure all stakeholders can contribute, and should consider the conclusions from the recent House of Lords Finance Bill Sub-Committee inquiry, particularly as they were dismissive of the reforms.”

Fighting to protect zero-rights workers

As things stand, from next month, medium-to-large private sector firms will assume responsibility for determining if the contractors they engage with should be taxed in the same way as permanent employees (inside IR35) or off-payroll workers (outside IR35), as part of a clampdown on disguised employment by HM Revenue & Customs (HMRC).

The tax collection agency claims the current mechanism, whereby contractors self-declare their tax status, is liable to exploitation by individuals seeking to minimise their employment tax liabilities by erroneously claiming the work they do puts them outside IR35.

However, the shift in responsibility has seen a number of high-profile private sector organisations respond by taking steps to ban limited company contractors from providing services to their organisations directly or via supply chain partners, or declaring that all the contractors they engage with are working inside IR35.

A frequently cited problem with receiving the latter determination is that being declared inside IR35 means workers are expected to pay the same employment taxes and National Insurance Contributions (NICs) as permanent employees, but are not eligible to receive the same employment benefits.

Therefore, this has led to concerns being raised that the roll-out of the IR35 reforms could lead to the creation of a “zero-rights” workforce in the UK, who are expected to pay the same taxes as permanent employees but without being able to access pension benefits, maternity leave, or paid sick leave, for example.

Dave Chaplin, CEO and founder of tax consultancy ContractorCalculator, said the failure to heed warnings about the negative impact IR35 will have on the economy means the government’s legacy is unlikely to be looked back on favourably in the years to come.   

“Already we are seeing firms unfairly classify self-employed workers as ‘deemed employees’, which means they are taxed as employees but yet receive none of the rights of employment,” he said.

“Havoc will ensue and Boris Johnson and Sunak will go down as the pair who introduced the ‘no-rights employment’ model and damaged the flexible workforce,” he added.

Chaplin also reiterated the findings of a recent ContractorCalculator poll that suggested inside IR35 contractors would be willing to engage in legal action to secure the same employment rights as permanent employees, and called once more on the government to halt the reforms.

“Genuine self-employed workers, who are wrongly deemed as employees under the new legislation, will be demanding their employment rights if they are classed as employees and taxed under PAYE. The Off-Payroll legislation is a no-win situation for them, their clients or the government and should be shelved,” he said.

Chris Bryce, CEO of Association of Independent Professionals and the Self-Employed (IPSE), described the Budget as a “gloomy event” for the self-employed overall, as the government seems intent on pushing ahead with the IR35 reforms at all costs.

“This will be catastrophic for the £305bn contracting sector and will do serious harm to the already troubled economy,” he said.

“The government review of IR35 was recklessly inadequate. Conducted in less than two months, it was not even independently chaired, and its recommendations were ultimately little more than superficial tinkering.

“The changes to IR35 will do serious damage to contractors, clients and the wider economy. We continue to urge the government to rethink this legislation and save the contracting sector while it still can,” he added.

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