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Staffing firms tell Chancellor to delay IR35 reform

Recruitment specialists write to Government

Recruitment industry leaders have joined forces to lobby the Government and call for the delay of changes to the Off-payroll working rules.

In a letter signed by fourteen recruitment organisations, the Chancellor of the Exchequer was encouraged to halt April’s IR35 reform, which the signatories said would “risk poorer treatment of contractors and compliant companies losing out to those who bend the rules.”

On 6th April, the Government will introduce changes to the IR35 rules that mean contractors will no longer determine their own IR35 status unless they are engaged by a ‘small’ private sector business. Medium and large private sector firms will take on this responsibility. Similar changes were also rolled out in the public sector in 2017 and apply to all public sector organisations. 

Public sector problems not yet “fixed”

The letter highlighted the problems experienced by the public sector, stressing that an assessment of these reforms is “fundamental to a genuine review” of the private sector changes, which is currently being held. 

With “much evidence which shows there are ongoing issues with public sector reform”, recruitment specialists have emphasised the importance of fixing these problems before private-sector changes are introduced. It’s likely that this is in reference to continued reports of blanket decisions, which force contractors inside IR35 regardless of whether their engagement belongs inside or outside the legislation.

The letter states: “There is no point in creating difficulty in the private sector when it can be avoided through lessons learned in the public sector.”

Fears over umbrella regulation

The recruitment sector’s “primary concern” is the potential for non-compliance in the umbrella industry. The firms that signed the letter say huge opportunities for tax avoidance will be created, given “the effective regulation of umbrella companies the Government has promised will not be in place in time for April.”

Because some contractors are considering working through an umbrella company in response to IR35 reform, the letter was also a useful reminder that independent workers should also carry out their own due diligence when engaging the services of one. 

“Badly designed” rules risk further problems

The Loan Charge should show the Government “what happens when badly designed changes are implemented”, the letter explains. As a result, lessons must be learned and the Government should not enforce reform until 2021 at least: “Government must be prudent and apply lessons from the loan charge to the IR35 reforms in the private sector. This is even more pertinent given the other significant legislative changes related to the Good Work Plan and Brexit which employers are already busy with.”

Hold independent IR35 review

HMRC must “adopt an independent Chair and body” to review IR35 reform, the recruitment organisations advise. This isn’t the first time industry experts have made this point. After the launch of the IR35 review at the start of the year, the Government was heavily criticised by IPSE, in particular, because it announced it would conduct the review itself. 

The letter states that an independent review would “enhance the legitimacy of the Government’s final position and win business confidence.”  

Lack of time

Private sector businesses won’t be ready to implement the rules successfully by April, these recruiters have said. This is because the IR35 review hasn’t yet concluded and the final legislation for reform hasn’t been published. As the letter details: “The current timetable leaves only 17 working days between the publication of final legislation on March 11 and implementation on 6 April.”

These staffing specialists did, however, offer their “full commitment” to the Government, as they look to help Westminster get reform “right.”  But in order for this to be a possibility, the Recruitment & Employment Confederation, that signed the letter, emphasised the importance of a delay, which “would allow MPs to properly take stock of the impact the legislation will have.”

You can read the letter in full here.

By Contractor Weekly


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9 thoughts on “Staffing firms tell Chancellor to delay IR35 reform”

  1. Jessica

    Both clients and agencies are shirking their responsibility.
    It does not make any sense to introduce a 4th party in the form of an ‘umbrella employer’ into the mix. Client – Agency – Limited Company moving to Client – Agency – Umbrella – limited company or more likely, Client – Agency – umbrella – individual is nonsensical.

    Outside IR35 must remain either
    Client – Limited Company
    Client – Agency – Limited Company

    Client – individual (with agency receiving a recruitment fee)

    Client – Agency – individual

    Telling a limited company that is lined up to provide a service to an end client via an agency that in order to provide that service they must join another employer (umbrella) to carry out the work for the end client is frankly offensive.

  2. Tim

    Any prudent Contractor will have accepted IR35 reform and made a decision as to their way forward -waiting on a review that may or may not happen doesn’t make any Business Sense from a continuation of work perspective and therefore financially. A review would still be welcome but for many contractors, it’s too late.
    Many have accepted permanent work, accepted being IR35, rewritten their contracts to be outside, gone abroad to work or as the article suggests are waiting on a Review.
    My experience of Umbrella companies is they are pseudo-employers purely there to collect NI and Income Tax – for the self-employed there is no meaningful benefit. They are purely a tool to collect taxes.
    Lastly, it’s not all about contractors. The knock-on effect to downstream revenue streams of accountants, life assurance & Business Insurance companies, the Banking Industry and others is significant.
    IR35 is poorly thought out and frankly is a sledge hammer to crack a nut. If reform is needed to resolve tax concerns than this legislation absolutely is not the answer.

    • Sam

      In many ways, Contractors are like tax collectors on behalf of HMRC. They pay VAT, Correction tax, Personal tax. They don’t get paid for Holidays, Sick leave. They are on their own. And then need additional compliance at client place. Better move to US, Can, Aus, NZ

  3. Frank

    It seems a bit late in the day for recruiters to be realising the impact of these ill thought out regulations on the private sector.

    Contractors will be badly affected, but as Tim pointed out the whole contracting industry will be destabilised by these changes. The knock on effects to Accountants, Insurers, Finance Industry in particular are going to be inestimable.

    Clients will lose their flexible workforce, certainly where contractors needed to be drawn from further afield and it will be no longer feasible proposition for them, due to additional taxation of travel/accommodation.

    I’m sure recruiters will ultimately be badly affected as a temporary workforce is more liable to become permanent over time, reducing churn and therefore opportunities for recruiters to earn their commissions (and of course margin on contracts).

    The only potential winners out of this I can see are likely to be large consultancy companies, who are likely to have the opportunity of taking on contractors as permanent staff and selling them to clients at rates far exceeding the rates the contractor was available for directly.

    In reality I doubt it’ll be much of a win for the HMRC …

  4. j

    Come along…

    Even if we can’t stop what’s going to happen in the short term, we need to get the MPs talking about this.
    They’re going to need to repair the damage they are doing to our vital flexible workforce.

    Even if you’re not a contractor – clients, agencies, accountants – everyone who is affected should show their support.

  5. Steve

    I don’t think we need to worry.. From what I’ve been hearing, the larger companies have setup to move most of the work outside the UK.
    As the UK government is clearly trying its hardest to bankrupt and undermine the UK’s position in the world, it won’t really come as a shock and they should be quite delighted.
    We are the laughing stock of Europe. I work in Europe with many different nationalities.. The French in particular are laughing, delighted they will see the demise of the UK economy.
    Over the last twenty plus years, I’ve accumulated wealth via property using contracting as the souce of income.. I’ve kept builder going throughout the winter when they would normally be sitting at home.
    Recently I’ve liquidated most of the assets due to IR35 and Brexit as I won’t beable to support the building community any longer and now just have a pile of money sitting in the bank waiting for gold to be a realistic purchase. Cheers the UK.. I hope the Politians and the estalishment in the UK burn in hell.

  6. Phil the Pill

    Waste of space bit of legislation. Was there anything “illegal” in paying yourself minimum wage and a big dividend? In any event as soon as you pay yourself a dividend you get taxed on it, plus you get to pay VAT on your purchases, Stamp Duty on a house , tax on any interested earned on investments etc. etc. It was always swings and roundabouts on the total revenue that HMRC will accrue. But nothing illegal was taking place. Can the whole IR35 and focus HMRC’s limited resources on the Big Fish and all the new paper work heading its way post the Brexit debacle.

  7. Multiroom

    Agree umbrell a is not the answer .They are not like they used to be.Out of your rate you will pay both employe and employer national insurance,
    income tax and aprentice levy and on Top of this they will charge you for receiving your own money.
    You can’t claim expenses as you are now classed as employed and don’t get any holiday pay unless you ask them to take even more money from your rate or the will pay it to you upfront which again is all out of the rate you thought you were getting. Totally disgusting the Govenment of this country can’t help but destroy everything.

  8. IR35 Bictim

    It’s just too late now

    My income will reduce by 50% as I move to permanent role.

    But On the positive.

    I will contribute £16k to the treasury rather than the £46k I had to pay them last year.

    The company I work for has made massive redundancies and the work has moved offshore

    So no tax being paid there, I will help complete the offshore transition and then I will be unemployed and at my age and skill set

    I will be signing on

    Age is not a problem for a freelancer but it is a massive issue in the permanent world

    HMRC Working Hard To Reduce The Tax HMRC receive

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