FSB warns government against pushing ahead with IR35 changes

Late last week, the government published a draft finance bill to deliver on its budget 2018 commitments, among which are changes to the operation of the off-payroll working rules from April 2020. 

The off-payroll working rules (commonly known as IR35) allow HMRC to tax sole traders as employees if it deems their working arrangement to be akin to regular staff. In April 2017, responsibility for deciding whether IR35 should apply to self-employed workers shifted from contractor to employer in the public sector. From April 2020, the same change will take effect in the private sector if the bill published last week passes unamended.

In its response to the government’s proposals, FSB urged policymakers to delay roll-out of the switch, warning that its introduction following a period of sustained political uncertainty and stuttering economic growth risks significant disruption to a quarter of a million sole traders.

The FSB's submission to the government also flagged issues with HMRC’s check employment status for tax (CEST) tool, used to determine whether or not IR35 should apply.

“Pressing ahead with IR35 changes in April with no regard for the other pressures facing businesses is a reckless move," warned FSB national chairman Mike Cherry.

“Left unamended, this bill could easily usher in an environment where firms in need of expertise in the short term steer clear of the self-employed community because they’re afraid of making an incorrect assessment, which would be damaging for all concerned. A lot of smaller firms that rely on sole traders have no experience of navigating IR35."

He cautioned that the government has failed to acknowledge that the vast majority of businesses do not enjoy access to the "beefed-up HR teams regularly found in public bodies".

“Even where firms do have dedicated HR personnel, their experience of taking responsibility for these arrangements is usually limited: large corporations have found the rules hard to navigate. And they’ll be reliant on a CEST tool, which – by HMRC’s own admission – delivers an undetermined result in a big proportion of cases," Mr Cherry added. 

“The flexibility of our labour market is one of our economy’s greatest strengths, enabling a jobs miracle since the financial crash. By bringing in these changes prematurely, we risk undermining that strength at a time when it’s desperately needed. Unprecedented political uncertainty, increasing regulatory burdens and rising costs are already hurting business confidence. Disrupting our vital sole traders will make a bad situation worse."

According to the government, reforms to off-payroll rules will reduce non-compliance and ensure fairness for all workers, regardless of the sector they are engaged in. 

"The government is committed to supporting business and ensuring the UK continues to be an attractive place to start and grow a business. A flexible labour market is a key part of that commitment. The off-payroll working rules do not affect the self-employed and do not stop anyone working through a company," the government said in a recent paper. 

HMRC said earlier that the changes are expected to affect 170,000 individuals working through their own company, as well as up to 60,000 organisations that use workers employed by a PSC.