Over half of the self-employed in Britain don’t know what IR35 is, despite being the people being most affected by it, according to research.
HMRC wants to bring thousands of freelance contractors who are effectively full-time employees within PAYE, in an effort to tackle what the taxman sees is “disguised employment”. Responsibility for assessing the tax status of self-employed contractors is due to shift from the contractor to the company that hires them.
The legislation, which has been heavily criticised by tax experts and business as being poorly conceived, badly implemented by HMRC and could reduce a worker’s net income by up to 25 per cent, is set to roll out in April 2020.
Accounting software provider FreeAgent surveyed 2,000 self-employed workers about small business taxation.
The Conservatives, Labour, the Liberal Democrats and Scottish National Party (SNP) have all pledged to review IR35 – although only the Lib Dems and SNP explicitly committed to a review in their manifesto.
Shadow small business minister Bill Esterson went further, announcing Labour would scrap IR35 being extended to the private sector before backtracking.
At the weekend, Chancellor Sajid Javid confirmed the Conservatives would review IR35, telling Radio 4’s Money Box programme, “I value the work of consultants and I want to make sure that the proposed changes are right to take forward.” Javid previously announced the IR35 review at a Federation of Small Businesses hustings last week.
Ed Molyneux, CEO and co-founder of FreeAgent, said: “It is almost unbelievable that IR35, which has a massive impact on self-employed people, is unknown 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.”
Julia Kermode, chief executive of the Freelancer and Contractor Services Association, told the Financial Times that although the Conservative IR35 review is welcome, she believes it is another tactic by a political party to garner votes.
Kermode said: “HMRC seems intent on bulldozing ahead with its plans to introduce the legislation in April 2020 whoever is in power.”
Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self-Employed, has called for all parties to stop the April 2020 roll-out.
“Freelancers and businesses must be reassured they will not be hit by these ill-conceived and hugely harmful tax changes in the spring,” he said.
Further reading on IR35