Off-payroll rules are one of four areas highlighted which the association wants addressed
IPSE has written to the Chancellor ahead of next month’s Autumn Statement, asking the new government to put forward plans that will “meaningfully support the self-employed”.
The association detailed the contents of its letter on its website, highlighting a number of areas where it believes that the new Labour government can “properly grasp” and resolve “the issues that are holding [the sector] back”.
IPSE notes that the government has so far set a gloomy tone for the Autumn Statement, acknowledging that many believe “tax rises and spending cuts are on the way”.
Against this backdrop, the association is calling on the government to “spare some positivity” for the self-employed, after “a painful few years” that have seen the sector hit by a number of challenges.
IPSE believes the Labour government can use the budget to “demonstrate an early commitment” to the self-employed, and has highlighted its top priorities for the Chancellor:
Fixing well-known flaws of IR35
The source of “significant disruption for businesses and public bodies”, IPSE has urged the government to “cut the economic drag net of IR35 loose”.
According to its own research conducted this year, half of contractors (54%) have “walked away from an offer of work due to disagreements over the client’s IR35 determination”. Similarly, “more than a third” of UK businesses are finding it “harder to engage the freelance talent that they need”.
Taken together, IPSE says these findings show the “detrimental effect” of IR35. But under the new Labour government, IPSE’s Policy Director, Andy Chamberlain, believes there is an opportunity to “take a fresh look at the impact of the IR35 reforms”.
As a result, he says, the association wants to work with the government to “find a fairer, more effective way of determining when someone is genuinely self-employed”.
Reverse decline in HMRC service levels
According to the most recently published statistics, HMRC is failing to meet customer service targets, and IPSE is calling on the government to reverse “the declining standard of service” that taxpayers experience.
Given the “complexity” of the UK’s tax system – and “the severity of penalties for misinterpreting it” – IPSE says it’s crucial the self-employed can speak to HMRC in a timely manner, to get “the assurance and support” they need to manage their tax affairs.
“A conversation over the phone with an HMRC adviser is often what the self-employed need to get their tax return completed on time and without error”, Chamberlain added.
To ensure this happens, IPSE wants the government to “rule out future attempts to close or limit access to HMRC’s helplines and set out a plan to reverse the decline in service levels”.
“Urgently” review MSC legislation
Following years of “uncontroversial” business-as-usual activity in the contractor supply chain, HMRC determined that two accountancy service providers were “in its view, ‘Managed Service Company Providers’ (MSCPs)”.
As a result of this decision in 2022, thousands of contractors who used those accountancy services face “life-changing tax bills”.
This happened, said Chamberlain, specifically after these workers had registered with these accounts, “specifically to be tax compliant”.
“Left unchecked, HMRC’s approach to this legislation could create mayhem for contractors and accountants alike”, he added. As a result, IPSE has asked the government to “urgently review the MSC legislation to ensure that its wording, and the approach taken by HMRC in enforcing it today, remain in alignment”.
This, says Chamberlain, would ensure “genuine freelancers and contractors are not caught by HMRC’s interpretation of the rules”.
Protect contractors from tax hikes
With Labour having previously ruled out raises to income tax, national insurance and VAT, IPSE believes that there is one “politically available” choice for the government – increasing Capital Gains Tax (CGT).
However, the association has asked the government to cap the rate of Business Asset Disposal Relief (BADR – formerly known as Entrepreneur’s Relief’) at 10% up to £1m.
This would protect those contractors considering selling or closing their business who want to “translate the value they have accrued during their careers into a meaningful source of income in retirement”.
On the MSCP front, I believe that HMRC must actively drive people to use solutions that they know they will find fault with later…
When I first started out contracting 2007, I actually wanted to form an LLP and take all my income as self employment “wages”, only to find that no-one would pay an LLP, I had to have a Ltd company as that’s the only way HMRC would be happy. Then we have HMRC cutting Ltd companies off at the knees and I still can’t be paid through an LLP, even being told by an accountant (trading as an LLP himself) that it wasn’t an effective way to run it… I mean WTAF, you are a partnership of accountants, not a Ltd Compay again, WTAF!