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Fri, 4 December 2020

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IR35 self-employed tax may be this Government’s first disaster

IR35 self-employed tax may be this Government’s first disaster

IPSE

3 min read Partner content

The Association of Independent Professionals and the Self-Employed is urging the Government to halt the changes to IR35 while a full and independent review is carried out.


If the changes to IR35 go ahead in April as planned, they will not only lose this government the support of the UK’s 5 million self-employed; they will also do untold economic harm across the country. They may well be this government’s first disaster.

“We’re committed to helping the self-employed.” That was what Chancellor Sajid Javid said in December last year when he pledged to review the changes to IR35 self-employed tax law to make sure they were “right to take forward”.

Mr Javid promised to review the proposed changes to IR35 because of IPSE campaigning during the election. Little more than two months later, however, the spirit if not the letter of that promise has been broken and contractors across the country feel betrayed.

The promised review turned out to be little more than a hasty tick-box exercise. Just over a month long and conducted internally, it will do nothing to assuage the fears of hundreds of thousands of self-employed people who face losing their contracts because of the changes.

The changes to IR35 due to hit the private sector in April essentially shift responsibility for judging whether contractors are “falsely self-employed” or not from contractors themselves to their clients. The problem is that the IR35 rules are nightmarishly complex and if clients get them wrong, they risk taking on an enormous tax liability – not to mention fines.

Many companies, afraid of falling foul of the labyrinthine rules, are now scrapping their contractors altogether. Most of the larger and naturally more risk-averse banks have done this, and many smaller companies are following suit. Others are only keeping contractors if they are willing to work “inside IR35”, where they would pay the same higher rate of tax as employees without any of the benefits – hardly a fair proposition.

Even before the changes take effect, they are already having a drastic impact on hundreds of thousands of contractors across the UK. And, come April, we can expect this to get worse. Hardly a surprise, then, that IPSE’s Confidence Index shows the changes to IR35 drove contractors’ confidence to the lowest level on record.

If the changes proceed as planned, it will be a disaster not only for the self-employed themselves, but also for the wider economy. The self-employed contribute £305bn to the economy every year – enough to fund the NHS twice over. These changes are likely to cause this vital and productive sector to contract. In the long-run, instead of boosting government tax revenue, these changes will do severe damage to the economy.

IPSE is running the #StopIR35 campaign to push back urgently against these disastrous changes. We’re urging the government to halt the changes to IR35 while a full and independent review is carried out. We’re calling on contractors to write to their MPs alerting them to the damage these changes will do – and backing a protest day in Parliament on 12th February. We’re also working hard to raise awareness about the changes and how contractors and the self-employed could be affected. To get involved with the campaign or find out more about the changes, visit IPSE’s IR35 hub now.

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Inclusive Capitalism

The next decade holds big challenges and it rarely has it been so important to show that capitalism and social progress aren’t opposing forces. Quite the opposite. All it takes is a longer-term view, a more inclusive attitude and for everyone to take that first step.

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