The controversial changes are due to come into the private sector in April 2020. A glimmer of hope for the freelancing sector came as the political parties lined up during the recent election campaign to promise a review.
However, hopes were recently dampened when the Government announced that while there would be a review there would not be a delay or postponement of the policy. (See: Government launches 'off-payroll review' - Shout99, Jan 2020)
IPSE - Hasty and inadequate
Freelancer group, IPSE, called the review 'inadequate' and said that it would 'leave the freelance sector floundering'. It also claimed that it didn't go far enough and would do nothing to allay freelancers’ fears about the changes to IR35.
IPSE noted that the Government has not paused the roll-out of the changes, has not said the review will be independently chaired and has allocated only a 'disappointingly short' period (until mid-February) for the review.
Andy Chamberlain from IPSE said: “The review is disappointingly hasty and inadequate.
“Not only has the Government not said it will pause the changes, it has also allocated far too little time for a full review and said nothing about selecting an independent chair.
“Such a limited review would leave the freelance sector floundering.
“Right now, across the sector, contractors and freelancers are panicking at the prospect of these disastrous changes.
“Major businesses, including most of the large banks, have already announced they will no longer engage contractors out of fear they will fall foul of the notoriously complex legislation.
“Even before the new rules take effect, they are precipitating a crisis among the self-employed.
“The Government must urgently reconsider. It must give more time for a full review that includes an impact assessment of the changes in the public sector and the likely effects on the private sector. And for the integrity of the review, it must make sure it is independently chaired.
“During the election, Sajid Javid said the Conservatives were ‘on the side of the self-employed’. It must not be one of the first acts of this Government to let this commitment slide.”
Qdos - Sign of progress
Tax specialists, Qdos, were less critical, saying that the Government had delivered on its promise of a review and calling it a 'sign of progress'.
Qdos CEO, Seb Maley, said: “The Government has delivered on its promise to review IR35 reform. The fact that it will conclude before the introduction of the changes in April is also important.
“However, while a review is a sign of progress it doesn’t mean the changes will be scrapped. HMRC itself has said this review is to make sure reform is implemented smoothly, suggesting the Government has every intention of rolling out needless changes irrespective of any findings.
“That HMRC is still under the illusion that IR35 reform only affects those ‘working like employees’ also shows just how out of touch the government is with regards to the true impact of the changes.
“Given the legislation applies to payments made on or after April 6, which typically covers work carried out in March, there is very little time for the government to make any improvements once the review has concluded in February.
“The Government also claim those who don’t comply with IR35 pay significantly less income tax and NICs than an equivalent employee. This is misleading, given the majority of tax paid on behalf of an employee is employers' NI. HMRC must stop painting the picture that it is the worker dodging tax.
"Taking everything into consideration, our advice to contractors, agencies and private sector businesses is to assume changes will be enforced and prepare immediately.”
ARC - Business will adapt
The Association of Recruitment Consultants (ARC) said that while they did not expect any material changes, the demand for contractors would be stronger than any IR35 changes.
Adrian Marlowe, chairman of the ARC said; “No one should be surprised at the decision. The Government has long committed to extending this reform and the arguments for and against have been rehearsed at great length. The measures have been criticised by us and others, and alternatives proposed, but all have been substantially rejected. Along with others in the industry we would like to see a wider review, but we do not expect any material change to the rules following this review.
"The issue that should be recognised is that the perception of contractor tax avoidance will not go away so long as the decision as to application of the rules is left with contractors and their advisers. Hence the new requirement for hirers to make the decision and the fee payer and hirers to be responsible for the tax. This forces compliance by raising the risk of investigation and claim by HMRC to a high level, and indeed some hirers are making decisions in line with this view.
"However recruitment businesses should not lose sight of the fact that employers will always want to hire workers temporarily, and this tax measure does not stop that. This does not mean we are in favour of it, as a better balance could be achieved if the government were to start afresh.
"However, hirers should also note that agencies can continue to supply workers and contractors without the risk of direct employment just as before. The decision by those businesses to refuse to hire contractors does not mean the end of worker hire, it simply means that those businesses will not work with company contractors because of the tax risk.
"IR35 only affects tax and, as with all other measures that have applied to the sector over the years, businesses will adapt. Alternatives are available, although care should always be taken to avoid replacing one risk with another. Always get advice from a trusted independent source.
"In summary, the key is to avoid viewing the tax as the most important issue; it is not. Skilled temporary workers will always be needed, and the market will always determine rates.”
Kingsbridge - Don't wait
Specialist insurer, Kingsbridge Contractor Insurance, urged recruiters and employers not to postpone their plans to prepare for incoming reforms, in light of the review announcement.
Nicola Hayman at Kingsbridge said: “While we welcome the fact that HMRC has recognised a need to take another look at how these changes will be implemented, there is no escaping the fact that it is now too late for a thorough review of the proposed reforms.
“Furthermore, the Government’s admission that the purpose of this consultation is to make ‘sure that the implementation of these changes in April is as smooth as possible’ confirms that any delay is extremely unlikely.
“With this in mind, we are urging the businesses that we partner with to continue to prepare for incoming reforms – there simply isn’t time to wait for the outcome of the review and final legislation.
“We are encouraged by the fact that, in its latest statement, the Government reiterated that the off-payroll working rules ‘do not affect the self-employed, as only those working like employees are in scope’. We also welcome the commitment that the review will also assess whether any additional support is needed to ensure that the self-employed, who are not in scope of the rules, are not impacted.
“Contractors represent a vibrant and increasingly important part of the UK economy, and this point further emphasises the fact that there is no reason why companies should be concerned about continuing to engage with this talent pool after April.
“Even when using HMRC’s own calculations, the vast majority of PSC contractors are genuinely self-employed – and recruiters should communicate this fact to any clients who may be spooked by the recent flurry of blanket bans so that they don’t consider implementing their own veto on contractors.
“In our experience, good recruiters are happy to place genuine contractors outside of IR35.”
APSCo - Confusion
Agency group, APSCo warned of the further confusion this review could create.
Tania Bowers from APSCo said: “While we are not altogether surprised by this announcement, we are disappointed that there is no intention of delaying incoming changes. APSCo has called for implementation to at least be delayed pending a further impact review and completion of an assessment on employment status. There is a clear need for a proper review, with adequate time to publish the outcome and recommendations of the review, and then roll out changes with certainty on final legislation. This timeline just doesn’t work.
“We, of course, support HMRC’s intention to ‘ensure smooth implementation of the reforms’. We also welcome further internal analysis of the CEST tool. However, the reality is that this review – at this time – is likely to create even more confusion.
“Essentially, with just weeks to go until the changes are implemented, we are now at a point where we don’t have any certainty around final legislation or any firm guidance from HMRC. New rules apply from March for firms running monthly payrolls – this eleventh-hour review is simply too late.
“A survey of APSCo’s membership, undertaken in December 2019, revealed that although more than three quarters of the professional recruitment firms polled believed that most of the businesses they work with were aware of the incoming changes, just 51 per cent said the majority of their clients were actively preparing for the updated legislation. With this in mind, we fear that this move will encourage some employers, recruiters and contractors to further postpone preparations due to ongoing uncertainly until mid-February when the review concludes – and by then the deadline will be imminent.
“There is certainly a feeling among some that this review is just a formality, with the Government obliged to follow through with a commitment that The Chancellor made publically last year during the run-up to the General Election. Regardless of the catalyst for this announcement, we at APSCo are always open to engaging with the Government to ensure the voices of our members are heard by policy makers and we expect to meet with HMRC as part of this review.”
Further IR35 information
For more information about all aspects of IR35, including the controversial IR35 reforms see Shout99's News on IR35 section.
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Susie Hughes © Shout99 2020