‘Don’t do it, and definitely don’t do it anytime soon’ – IPSE’s response to IR35 consultation

• 10 Aug 2018

First of all, I’d like to say a big thank you to all the IPSE members who have helped us put this response together. Many of you have taken time out to attend our focus groups, contact us with your case studies and complete our survey. Many more have written to their MP and shared their response with us. It’s all invaluable information which enables us to understand the impact of the government’s proposal and forge our arguments accordingly.

 

 

As most people reading this will now be aware, the government released a consultation document earlier this summer, which set out its intention to do exactly what it had denied it would do less than a year earlier: extend the public sector IR35 reforms to the private sector.

Since April 2017, public sector organisations have had to determine the IR35 status of all their ‘off-payroll’ engagements. Previously that had been up to the contractor – in the private sector it still is, for the time being at least. If the public sector hiring organisation decides IR35 applies, the contractor has to go on the payroll and is taxed at source, like an employee. Now the government wants the private sector to adopt the same system.

In IPSE’s response to the consultation, we make one over-riding recommendation: don’t do it. There are a great number of reasons not to and we think the government should find them compelling. This is a measure that will heap (more) administrative burden onto UK businesses, (further) cripple productivity and (further) complicate employment status law. And all this at a time when the government doesn’t appear to have any kind of plan about how to deal with Brexit.

It’s an extraordinarily short-sighted policy. If you believe many economists, the UK is staring into a Brexit-shaped abyss, yet the government wants to introduce a measure which will damage the UK’s greatest competitive advantage – our flexible economy. Freelancers operating through their own company contribute around £38bn to economy annually. But it’s their indirect contribution which is most important. They enable their clients to take on more risk and be more innovative, ultimately leading to growth and more jobs.

At a time when companies are already reconsidering whether the UK is a good place to invest because of Brexit, introducing a measure which will restrict their access to specialist skills on a flexible basis will do little to make us look a more attractive prospect.

Unfortunately, the government seems intent on pressing ahead. For this reason, we’ve made a series of supplementary recommendations, including ‘don’t do it soon’. To add weight to our arguments, IPSE commissioned ComRes to find out whether clients were aware of the impending changes and how they would be impacted. Unsurprisingly, they aren’t aware and aren’t ready, so we’ve asked the government to explicitly rule out implementation in 2019.

We also point out that we still don’t know what will happen on the back of the Matthew Taylor review, and that much of what was discussed in the subsequent Employment Status consultation will impact IR35; so why the separate consultation in the first place?

Of course we talk about the CEST tool in our response too, and how there can be no sense in extending the changes while there is so little public faith in the tool’s ability to deliver accurate determinations. There’s little faith in HMRC’s ability to make accurate determinations, particularly so given they have lost three out of four IR35 tribunals this year. How can the government expect businesses to make complicated IR35 determinations when HMRC, with all its expertise and resources, can’t do it and the tool doesn’t work?

We also suggest there should be an exemption for small and medium sized businesses who will be hit hardest by the administrative burden that this measure will entail. And there must be an appeals process for individuals who feel their client has made the wrong determination – which we predict, they frequently will.

It remains to be seen whether all of this will fall on deaf ears. To be fair to HMRC, they have been doing the rounds during the consultation process, even coming to talk to IPSE members, so they have at least appeared to be listening.

Certainly, IPSE’s lobbying won’t stop here. We will continue to make the case for abandoning this proposal. After all, the government doesn’t have a Commons majority, so policy changes can’t be taken for granted – especially not policies which will hit business where it hurts and damage the economy in the process.

IPSE’s full response is available here.