IPSE: The government is escalating its war on the self-employed

Posted On: 
23rd May 2018

With the uncertainty of Brexit looming, the government should be supporting its most productive sectors, not waging a war against them. IPSE will be leading the fight against the IR35 reforms – for the good of the self-employed and the economy says Chris Bryce CEO, IPSE.

Despite the research and the evidence of its own defeats, the government seems determined to push through the changes to IR35 in the private sector.
Credit: 
PA Images

The Chancellor’s bungled attempt to raise National Insurance Contributions for the self-employed last year was a betrayal both of a manifesto pledge and of the UK’s 4.8 million-strong self-employed community. And that was only the start of what seems to be a concerted campaign against this most productive of sectors. With everything from new dividends taxes to potential changes to VAT thresholds, he has made sure the self-employed are always looking over their shoulders for the next attack.

Now he and the government seem to have the self-employed in their sights again with a new consultation on extending the changes to IR35 from the public to the private sector. 

Public sector pandemonium

IR35, a tax law essentially allowing HMRC to treat self-employed people as employees, has already caused severe problems for one of the UK’s most productive sectors. This government, however, turned these problems into a full-blown crisis for the self-employed when it changed how IR35 works in the public sector.

From April last year, the government shifted responsibility for judging whether or not self-employed people should be taxed as employees from the self-employed themselves to the public sector bodies that engage them. The trouble was that IR35 tax law is notoriously complex, so instead of risking falling foul of the regulations, many public sector bodies simply declared all their contractors under IR35 – whether they were legitimately self-employed or not.  

The result? Widespread walkouts from the sector, worsening the toxic NHS staffing crisis, stalling huge TfL projects and causing severe delays to government and public projects across the UK. Although the Government has tried to downplay these concerns in the consultation document, research by Contractor Calculator and reports to the Association of Independent Professionals and the Self-Employed (IPSE), the Chartered Institute of Personnel and Development (CIPD) and the British Medical Association (BMA) paint a picture of chaos and disfunction.   

What’s more, with personal tax returns not due until January 2019, the Government hasn’t even left enough time to analyse the full impact of the public sector changes made in 2017/18.

A looming catastrophe

Public sector contractors are just a small fraction of the self-employed. Imagine the consequences if these ill-conceived changes were extended to the rest of the self-employed. The government would essentially be heaping the burden of navigating the complexities of IR35 onto businesses great and small across the UK. More blanket IR35 judgements would be sure to follow. And, given what happened in the public sector, this could have catastrophic consequences for the UK economy.

This, however, appears to be what the government intends with its new consultation on off-payroll working rules in the private sector. Although branded a ‘consultation’, the government seems to have a clear idea of the course it intends to take, listing ‘extending the public sector reform to the private sector’ as its lead option for changing off-payroll working rules.    

The real question is: if the changes have done that much damage to the public sector, why is the government planning to extend them? Well, you don’t have to look far into the consultation to find out. Where IPSE and other associations have focused on how the changes affect contractors and overall sector efficiency, the government has one main interest: “an additional £410 million of income tax and NICs has been remitted”. It’s a claim based entirely on HMRC’s say so, rather than published evidence. And a rather short-term gain compared to the long-term damage to the public sector.

When the government announced the consultation on extending the changes, it also published its own external research on the effects of the IR35 reforms in the public sector. By publishing the research and the consultation simultaneously, however, the government denied organisations like IPSE the chance to properly scrutinise the findings before it essentially laid down a roadmap to extending the IR35 reforms.

It looks like the government may indeed have had good cause not to let interested parties read the research in advance. While its press release on the consultation states breezily that the research shows “the reform has had very little impact on projects or vacancy filling in the public sector,” the actual report tells a different story. The research states that “one in three central bodies (32%) and one in five sites (22%) reported that it had been more difficult to fill contractor vacancies.” It also said only “around half of central bodies (49%) found the off-payroll working reforms easy to comply with” – which means 51 percent of agencies found it difficult. Even the government’s own external research paints a far from rosy picture of the public sector reforms. 

Research aside, the other problem with the consultation is that it is based on flawed assumptions. Right now, the government wants people to rely on HMRC’s ‘Check Employment Status for Tax’ (CEST) tool to determine their IR35 status. And yet, even with its tool, HMRC lost two out of three tribunal cases over IR35 status this year, suffering yet another humiliating defeat only last week. If even HMRC cannot navigate the complexities of IR35 regulations, how can it expect the self-employed and their clients to? It makes a mockery of the government’s claim that the “genuinely self-employed will not be affected” by the proposals.

Leading the fightback

Despite the research and the evidence of its own defeats, the government seems determined to push through the changes to IR35 in the private sector. It appears to have prioritised a short-term tax grab over the long-term wellbeing not just of the flexible labour market, but the wider UK economy. The flexible labour market is quite simply one of the best financial assets we have, contributing no less than £271bn to the UK economy every year. With the uncertainty of Brexit looming, the government should be supporting its most productive sectors, not waging a war against them. IPSE will be leading the fight against the IR35 reforms – for the good of the self-employed and the economy.