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Despite widespread condemnation of the proposals before the Budget, the fear generated by some of the speculation was sufficient to temper reactions to the actual proposals, which gave a longer lead time and restricted it to larger businesses.
Nevertheless, the Chancellor did confirm that the enforcement of the IR35 rules and worker status determination will lie with private sector clients from April 2020.
The extension to the private sector is expected to raise over £3 billion for the Government between 2020 and 2024.
A summary of the reaction from the freelancing sector follows:
ISPE - 'holding pattern of despair'.
Freelancer group, IPSE, was the most critical of the delayed changes as they saw the postponement pushing the self-employed into 'a holding pattern of despair'. The group said that the roll-out to the private sector would have a 'a catastrophic impact on one of the UK’s most productive and dynamic sectors'.
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“The Chancellor’s smash-and-grab approach to taxing the smallest businesses is short-termism on steroids.
“It is a short-term tax grab that will do lasting damage to the economy by taxing out of existence the smallest and most agile businesses.
“These are the very businesses the Government and large corporations will need to call upon to provide the specialist skills to navigate our way through Brexit.
“This fresh raid on the self-employed comes only a month after the Government backtracked on its pledge to abolish Class 2 NICs, costing freelancers an average of £150 per year.
“The Chancellor’s budget record is stuck on repeat: go for the self-employed, go for the self-employed.
“The Chancellor says this is about tackling non-compliance, but the Government’s idea of what ‘non-compliance’ looks like has been overturned by the courts in 75 per cent of cases in the last decade.
“The off-payroll rules are so complex and crude that genuinely self-employed people will be swept up by the Government’s smash-and-grab mentality and in many cases taxed out of operation.
“This will have a chilling effect on entrepreneurialism in the UK: if you’re thinking about striking out on your own, as a white van man or a one-woman band, you’ll always be looking over your shoulder, wondering when the Government will be coming after you.
“These measures are also profoundly anti-business and anti-competitive. Large, multinational companies who engage contractors will now have the power to unilaterally alter the tax affairs of the smallest businesses – the self-employed.
“The rules also allow big businesses to push their National Insurance obligations onto the self-employed, who end up being taxed like employees without any employment rights.
“Once these smallest businesses have been forced out, the likes of the Big Four service companies – who don’t have to worry about IR35 – will swoop in and pick up all the contracts.
“The self-employed contribute a staggering £271 billion to the UK economy each year, and give the country one of its greatest competitive advantages – flexibility.
“The Government’s smash-and-grab mentality will therefore punish the overwhelming majority of genuinely self-employed people, heap a massive administrative burden onto businesses at a time of Brexit uncertainty, and also undermine one of the UK’s most dynamic and productive sectors.
“The fight against this crude and unworkable policy isn’t over. For the sake of the UK economy, IPSE will continue to stand up for fairness and do everything it can to prevent the Government from taking a wrecking ball to the UK’s flexible workforce.”
APSCo - Welcome delayed roll-out
Samantha Hurley, from agency group, APSCo said: “While we maintain that extending changes around off-payroll working to the private sector will have an adverse impact on the strength of the UK’s labour market and wider economy, we welcome the fact that HMRC and HMT have taken on board the advice of APSCo and other influential bodies that it was wholly unfeasible to introduce changes as early as April 2019.
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“There is no doubt that the timeframe is still tight, and we would have hoped to see draft legislation before next summer. However, organisations will at least have a clearer idea from the upcoming consultation on the detail of the changes to enable them to upskill their workforces to be able to make appropriate status determinations and to get their internal processes and IT systems in order, to cope with the new rules.
“HMRC’s budget brief suggests the off-payroll rules will be extended in their current form into the private sector. APSCo has expressed real concern that the current public sector rules would not work properly in the private sector, particularly given fears over the accuracy of the CEST tool, and the lack of liability given to the end client.
“The Chancellor has confirmed that small organisations will be exempt from this extension, stating that it would minimise the “administrative burdens for the vast majority of engagers”. This seems to suggest that the Government believes that the vast majority of “engagers” of contractors are small businesses. We need to understand whether HMT means the end client users or the engagers to know how far this will limit the burden on businesses. However, we welcome that HMRC has listened to our concerns around the ability of small businesses to deal with this extra burden."
CIOT - 'Challenge'
Professional tax body, Chartered Institute of Taxation (CIOT) welcomed the delay until April 2020 on the basis that it should give time for HMRC to learn from the problems arising last year in the public sector. But it warned that determining a worker’s employment status remains a real challenge.
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“But unless the Government also acts to clarify the underlying employment status issue, disputes between contractors and business could keep the courts very busy in the years ahead.
“We welcome the limitation of the ‘off-payroll’ changes to large and medium-sized engagers. Imposing a deduction at source model on the private sector would have hit smaller businesses with disproportionately greater administrative and professional costs than medium and larger businesses. While operating the off-payroll rules will be onerous, larger businesses are better placed to absorb the associated costs.
“We also urge HMRC to work with stakeholders to improve the operation of the existing off-payroll rules in the public sector, so that they are fit for purpose when extended to the private sector. In particular, it seems that in some cases public sector bodies are automatically applying the IR35 rules to contractors working through their own personal service companies (PSCs) without assessing whether or not those rules should be applied on a case-by-case basis.
"HMRC’s Check Employment Status for Tax (CEST) tool may also be creating ‘false positives’ where it adjudicates a case as caught by IR35 as it does not always adequately reflect all the factors in play and it is good that the Government is committing to improve the effectiveness of CEST. The process for challenging deduction at source also needs to be streamlined to prevent prolonged delays and uncertainty for the worker, the PSC, the public sector and indeed HMRC.
“Off-payroll working is in fact but one facet of a much broader issue of how we tax labour in the UK. The Government have consulted on the issue of employment status for labour law and tax purposes, albeit not yet publishing their conclusions. In our view IR35, the taxation of the employed v self-employed and labour law issues should all be viewed through the same lens and considered together.”
ARC - 'Confusing
Adrian Marlowe, Chairman of the Association of Recruitment Consultancies (ARC) said: “Whilst there was no suggestion that the delay is to consider other options, delay is very welcome.
“This should allow time for a review of the position post Brexit as well as an opportunity for the Government to complete its assessment of the employment status rules that were subject to consultations earlier this year. As IR35 relies on employment status tests, it makes sense to have those finalised before any further change.
“Whilst the Government is right to collect tax where it is being avoided, the current rules are confusing and give rise to unfairness in many cases not the least where contractors operate a genuine business that would normally be entitled to tax reliefs. We at ARC have argued for various alternatives, all of which would take the stress for hiring businesses out of the equation, and retain key points of principle.”
FCSA - Treasury listened.
Julia Kermode from supply chain representative body, The Freelancer & Contractor Services Association said: “The announcement to delay the roll-out until 2020 shows that the Treasury has listened to the concerns of stakeholders like ourselves who have been campaigning hard and will give us time to work more with policymakers to ensure they get it right. A delay will give businesses and freelancers time to prepare for the inevitable complexities of implementation.
"In an interesting move, the Chancellor decided to level the playing field between public and private sectors, but only for large and medium businesses, thus letting SMEs off the hook. This is somewhat foolhardy given that large businesses are precisely the ones that are least well-placed to accommodate the change due to the impact on their IT infrastructure should they need to process deemed payments to their contractors.
"The reforms dictate complexities in paying off-payroll workers’ invoices that require both accounts payable and payroll software to “talk to” each other – functionality that most large businesses simply do not have. To achieve this will require a significant IT development programme, so an 18 month lead-time will be welcomed I’m sure. However, businesses will need to start planning their IT development very soon, at the same time as grappling with the implications of Brexit. The Government claims to be supportive of businesses but they are not making things easy for them.
“What’s more, we will undoubtedly see an exponential proliferation of tax avoidance schemes as an inevitable consequence, as we have seen in the public sector. With a reduction in income, large numbers of contractors working in the public sector have been enticed by non-compliant tax avoidance schemes that reduce their tax and NI contributions by disguising remuneration as ‘something else’ such as annuities, loans or even marketing vouchers.
"However, the reality is that the tax and NICs will still be due and HMRC will pursue the individual for this, and with interest, and however tempting, contractors must resist such schemes. We will continue lobbying for all such schemes to be stamped out before any IR35 reforms in the private sector.”
Further information
For more information about the controversial IR35 tests and rules; and other aspects of IR35, see Shout99's News on IR35 section.
For more Budget news, see Shout99's Political News section
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Susie Hughes © Shout99 2018
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