With IR35 reform only months away, it has emerged that more than half of 2000 self-employed people do not know what the legislation is. This is despite each major political party addressing the issue recently, with the Conservatives, the Liberal Democrats, the Scottish National Party and now perhaps Labour too all promising to review the impact of incoming changes.
On 6th April 2020, IR35 reform will be enforced in the private sector. It will see limited company contractors lose the right to determine their own tax status. This responsibility will transfer to the medium and large companies that engage these workers, similar to public sector reform that was introduced in 2017.
That the IR35 legislation, designed to combat ‘disguised employment’, remains a mystery to the 57% of the self-employed people surveyed by accountancy software provider, FreeAgent, is seen as a cause for concern – even though the legislation only applies to individuals operating through a personal service company (PSC). While IR35 doesn’t apply to sole traders, employment status does, with the rules for determining employment status very similar to the IR35 tests, as Qdos Contractor explains here.
IR35 changes, which various experts have predicted could reduce a worker’s income up to 25%, should they be placed inside the legislation, have been heavily criticised by contractors, their clients and recruitment agencies. Due to the complexity of the rules, experts have argued that businesses will not have a strong enough grasp of the legislation to make accurate IR35 decisions.
While many contractors are well aware of the situation, Ed Molyneux, CEO and co-founder of FreeAgent, said it was “unbelievable” that most of the self-employed surveyed were not clued up about IR35. However, Molyneux did blame this lack of awareness firmly on the Government.
“It is almost unbelievable that IR35, which has a massive impact on self-employed people, is unbeknown to many of them. Despite this, I can’t help but feel the shock is dulled by the expectation provoked by notoriously poor Government communication.”
With the countdown on to April, Molyneux called on politicians to improve the available information surrounding the legislation, which he described currently as “a vacuum of conveyance of important information between the Government and small businesses.”
He also said: “The need for a more informed UK small business nation extends beyond IR35 and applies to other regulations which, at the end of the day, can make or break small businesses.”
Surprisingly, the data gathered by FreeAgent also showed that only 30% of the self-employed surveyed would like to see IR35 reform scrapped – although this low figure could be attributed to the fact that most respondents didn’t know what the legislation is.
Less shocking was that nearly half (44.5%) of self-employed workers want the Government to simplify the tax system. Arguably, the IR35 legislation symbolises the UK’s complex tax system – a point that IPSE’s Andy Chamberlain made recently in reference to the presenter, Helen Fospero’s IR35 Tribunal win last month.
“IR35 legislation is so complex that even the UK’s tax authority cannot understand it. And if HMRC cannot grasp its own legislation, how can it expect businesses across the UK to when it changes IR35 in the private sector next April?”
In numerous discussions, HMRC has addressed the concerns of IPSE and promised to improve the level of IR35 support that contractors and private sector businesses receive. For example, in a recent IR35 Forum, the notes explained:
“HMRC assured forum members that education and support is being developed to ensure that people can get the information they need at the right time. HMRC will work closely with representative bodies and stakeholders, including forum members and tax agents, to both develop the guidance and support and educate their members and customers.”
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