Government’s self-employed tax review ‘inadequate’

self employed staff

Contractors’ representatives have questioned the value of a government pledge to review a clampdown on tax avoidance linked to the use of self-employed private sector workers.

The Treasury said that it would engage with self-employed businesses to ensure the smooth implementation of rules designed to stop people working “off-payroll” to reduce their tax bills.

The government said that its review would ensure that genuine self-employed workers were not harmed, but industry groups said they feared that too little time had been left for the work. The review, which was launched yesterday, is due to conclude next month. The rules come into force on April 6.

The Association of Independent Professionals and the Self-Employed called the review “inadequate” and warned that the legislation was “precipitating a crisis”.

The rules, which already apply to the public sector, are designed to tackle so-called disguised employment, the term for people who present themselves as off-payroll freelancers but whom the tax authorities believe should be treated as employees.

Off-payroll working rules, known as IR35, were introduced in 2000 to ensure that someone working like an employee, but through a company, pays similar taxes to traditional employees. The use of personal service companies allows contractors to reduce their tax and national insurance bills.

The new approach shifts the compliance burden from individual contractors to any medium-sized or large businesses that wants to hire them. Businesses remain free to engage off-payroll freelancers, but must satisfy themselves that their use does not amount to disguised employment.

The government says that “only those working like employees are in scope” of the rules, but representatives of the self-employed have complained that the policy is freezing “outside IR35” contractors out of work because of how businesses are reacting to it. In anticipation of the changes, several big employers, including banks such as Barclays, Lloyds and HSBC, have said that they will cull contractors.

The government said that it would collect evidence from “affected individuals and businesses to ensure smooth implementation of the reforms”. It will assess whether any “additional support is needed to ensure that the self-employed, who are not in scope of the rules, are not impacted”.

Support will be offered to help people to prepare for the changes, with “one-to-one engagement” and workshops alongside targeted communications.

The independent professionals’ association had called for a delay to the introduction of the legislation. Andy Chamberlain, its deputy director of policy, said: “Not only has the government not said it will pause the changes, it has also allocated far too little time for a full review.” He said that contractors and freelancers were “panicking at the prospect of these disastrous changes”.

Craig Beaumont, director of external affairs and advocacy at the Federation of Small Businesses, said that if the findings of the review suggested a delay was needed, “then we need to get that delay confirmed, and fast”.

Extending IR35 is expected to raise £3.1 billion in extra revenue for the exchequer between 2020 and 2024.