Pause for thought on IR35

The Recruitment & Employment Confederation (REC) Budget submission has called on the government to avoid rushing through changes to how contractors pay tax (IR35) in the private sector.

Citing evidence from public sector changes, the leading voice for the recruitment industry says the reforms could be counterproductive for the Treasury and damage the jobs market at a difficult time for business with Brexit on the horizon.

The REC recently surveyed its members over the IR35 changes, and found that almost three quarters felt early implementation of IR35 in the private sector would not only lead to an increase in tax avoidance schemes and non-compliant intermediary models, but also cause reduced flexibility in the labour market to adapt to changing conditions. While 42% of members surveyed said that they had observed an increase in the number of non-compliant umbrella/intermediary models since the introduction of the public sector IR35 reform in April 2017.

Recruitment & Employment Confederation chief executive Neil Carberry says: “Everyone should pay the correct amount of tax. But rushing through poorly designed reforms to contractor tax in 2019 could be a gift to the unscrupulous – encouraging those who use tax avoidance schemes not those workers and companies who do the right thing. With many of recruiters seeing a rise in avoidance in the public sector since changes made last year, the vast majority of recruiters are clear that the Government needs to pause for thought on IR35.

“The ongoing employment status review should be completed before any changes are made. And with Brexit causing uncertainty for all UK business, the government can ill afford to introduce reforms which risk damaging the flexibility of the labour market at a time like this.

“The REC wants the Government to conduct a comprehensive impact assessment of the IR35 public sector reforms before progressing to the private sector. Worryingly, previous problems with unregulated intermediary company models have clearly worsened as a direct consequence of the reform in the public sector.”

The REC is also asking that HMRC speed up investigations and implement an appeals process for contractors who disagree with their IR35 determination, while promptly closing down any intermediaries who promote or use non-compliance schemes. Clients should also have liability for the decisions they make on the tax status of contractors.

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