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IR35 a mystery to majority of self-employed 

Most self-employed are not aware of IR35 legislation

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.

Lack of awareness “unbelievable”

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.”

Calls to simplify the tax system

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?”

HMRC promises IR35 guidance 

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.”

Do you feel you have a strong understanding of IR35? Join the conversation below…

 

By Contractor Weekly

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7 thoughts on “IR35 a mystery to majority of self-employed ”

  1. Huw

    I’m normally a fan of these articles, but this is just silly. It’s not a surprise at all that so many self-employed don’t know about IR35 – how many builders, electricians, plumbers et cetera would be affected by it?

    • krystan

      How many builders or plumbers would be affected indeed. Let’s take a look, A Plumber trading by their self single van type business doing house call type business, clearly and obviously self-employed, will remain unaffected by IR35.

      I Plumber or builder that works for a large building contractor and only for them, exclusively on their sites through their own limited company.. hmm thats not so clear, so many in IT so this exact thing, is the builder deciding how the project should be run or are they controlled by the client in this instance? Perhaps MOO doesn’t exist, can the builder supply substitution and if they did would the site owners accept or reject them?

      What about all those plasters who turn up and want paying in cash at your house?

      Its not clear at all in some cases and clear in others.

  2. Diane Morrison

    It seems that most articles about IR35 draw attention to the fact that the majority of contractors do not have enough understanding of the IR35 legislation. I would say that equally, neither do the writers of these articles.

    They just emphasise the fact that we don’t know what will be the outcome after April 2020 as the government hasn’t communicated (or fully decided?) what will happen and we need to know.

    • Contractor Weekly

      Hi Diane, thanks for commenting. As it stands, IR35 reform will be going ahead, despite promises from various political parties to review the rules. A review of IR35 reform does not mean – at this stage anyway – that changes will be scrapped.

      To add a little context, various experts predict different outcomes as a result of IR35 reform being introduced, but the general consensus is that it is short-sighted and absolutely needless.

      On the one hand, there’s the view that it cannot be managed and contractors will be placed inside IR35 unfairly, initially at least. The other argument is that with the right advice and help, private sector firms will be in a position to accurately determine IR35 status, meaning contractors will be able to continue operating outside the legislation – the likes of Qdos, for example, are working with private sector firms to ensure they are capable of making well-informed IR35 decisions.

      After the general election, we imagine the pressure will be on the new Government to review IR35 reform immediately and halt the April roll-out. This is certainly the ambition of IPSE anyway.

      You’re right in thinking there is some uncertainty and the political situation perhaps adds to that. However, in the coming weeks and months, a clearer picture should emerge.

  3. Mark

    A lot of people working in IT have no clue what IR35 is, so how they have previously determined their own status is a mystery, especially those who have been in role(s) at a company for several years – just the type of people who are disguising employment.

    I have performed short-term contracts (3-9 months mostly) across the UK, and although my determination was ‘outside’ at a public sector body in 2017 my role was diminished as a result and I could no longer lead a function that I have abundant skills to do so.

    With any ‘inside’ determination, apart from the immediate impact on income the feasibility of working anywhere in the UK disappears as expenses would no longer be deductable. It is therefore with a heavy heart that I am closing down my company and setting up a home-based business that I can run without all the hassle. So up yours HMRC your income from me will fall significantly and I won’t even be VAT registered either.

  4. Mick

    I’m astonished at the numbers you quote that are unaware of IR35 legislation. This has been a hot topic of discussion among colleagues of mine for almost two decades since “Red” Dawn first thought up this idiotic idea.

    I work in the oil industry and have yet to meet a contractor who is not fully up to speed with the implications of IR35. Many, like myself will wait until our status determination process has completed and almost to a man (or woman) if determined to be inside IR35 will be looking to take our skills out of the UK, and its tax system.

    This ill thought out legislation will result in a brain and skill drain from the UK across a number of working sectors, and a resulting loss of revenue for Hector.

  5. Horse

    Pure socalist envy that is riddled through them all and is ascendent in their adelled brains gaining momentum in the new/old labour party

    Just wait for pure evil mcdonnell to start the 60’s and 70’s all over again

    I remember well paying 90% tax on what is now known as PAYE

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