IR35 one year on: Five questions the government must answer
- 06 Apr 2022
Despite repeated and powerful calls from contractors, clients, IPSE and other groups, the government pushed through with its implementation of IR35 reforms in the private sector last year. To say it has been deeply damaging for all parties involved would be an understatement.
We now have a situation where contractors are earning less and have less control and independence, clients are now dealing with an increased administrative burden and finding it more difficult to recruit the freelance talent that their business needs and whilst HMRC claim tax revenue has increased, this is not accounting for the significant loss of contractors not currently working or moving abroad as a result of the reforms.
Why disincentivise limited company working?
Let’s not forget that operating as a self-employed individual is not without risk. This government has not sought to incentive the pursuit of these entrepreneurial risks when these individuals are foregoing the employment benefits enjoyed by employee counterparts. Instead, they have disincentivised those who opt to incorporate at a time when self-employment could help drive economic growth in a post-pandemic UK. We are now in a position where these same individuals are taking their business abroad.
Where is the review into the impact of the reforms?
The government promised the publication of a thorough review into the impact of the reforms at the start of the 2022. We are now one year on the from the IR35 reforms being implemented and the government has still not given us a date for when we can expect to see this review. With IPSE’s own research showing reduced day rates, increasing use of umbrella companies or contractors seeking roles abroad, the government must urgently expediate this research and explore the wider implications of the reforms on the labour market.
Who is responsible for tackling non-compliance from clients?
Blanket assessments and blanket bans from clients are an act of non-compliance with the new rules. Amidst the confusion and complexity of the implementation, clients across the UK introduced blanket bans on those operating through a limited company or blanket assessments, deeming all engagements as inside IR35. As of yet, we are yet to hear of any examples of blanket decision policies being overturned by HMRC compliance activity.
Where is the action to deal with the unregulated umbrella company market?
The IR35 reforms in the private sector have undoubtedly been responsible for the significant increase seen in contractors operating through an umbrella company. Yet, the government has failed to respond to the increasingly concerning reports emerging from the unregulated umbrella company market. We’ve had reports of contractors being denied holiday pay, privacy concerns and also reports of umbrellas passing on the liability of Employer’s NI to contractors through a reduction in their day rate. The creation of a Single Enforcement Body is undeniably required to regulate across these areas of unscrupulous umbrella company provision.
What happened to the government’s commitment to provide clarity on employment status as part of the Good Work Plan?
Many, if not all, of the issues outlined in this blog could be tackled with alignment of tax and employment status, as set out in the Taylor Review. Updates to our current employment legislation would provide much-needed clarity and simplification to both contractors and clients – creating clearer expectations of when it is appropriate to operate as a limited company, a sole trader or an employee.
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