Budget 2021: Rishi Sunak outlines support for self-employed
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IR35 changes will be enforced today, as medium to large businesses will be required to set the tax rules for contractors they hire. The Government made the changes to reduce tax avoidance and make sure everyone was paying their fair share but many organisations warned the changes would lead to raised costs for businesses, and reduced work for the self-employed.
Today, as the new rules take effect, Ed Molyneux, the CEO and co-founder of FreeAgent, issued a warning on the damage that may be on the horizon: "Today, the long-awaited changes to IR35 rules will finally come into effect. However, despite them being postponed for a year, I am concerned that the changes will still come too soon for many freelancers and contractors.
"This is the most significant tax change in the freelance and contracting economy for years - essentially pushing many people who are contracting within the private and private sectors into quasi-employment, albeit without any of the protections that they would receive if they were actual employees.
"But those who will be most impacted are the same freelancers and contractors who have been worst affected by the pandemic, and who are still dealing with the ongoing economic fallout from it.
"We know that many of these workers view IR35 in general as a fundamentally unfair piece of legislation.
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"They argue that as uniquely vulnerable members of the economy - who do not receive statutory sick pay, holidays, maternity leave or any of the other statutory benefits that their employed counterparts enjoy - they should not be taxed in the same way as those in traditional employment.
"Our own research shows that the majority of business owners who actually know what IR35 is, believe that the legislation will have negative consequences for independent workers, while 75 percent of our accounting practice partners think the reform of IR35 should be postponed.
"Perhaps even more worryingly, in a survey we carried out a year ago with self-employed people in the UK, 57 percent admitted they didn't even know what IR35 is - highlighting the lack of transparency around this policy.
"While it is too late to go back on the upcoming changes that will come into play this month, I urge the Government to increase transparency around the regulation and consider how already vulnerable contractors and freelancers will be impacted.
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"It is imperative that we properly support these important workers through these changes, rather than leaving them to struggle on their own at a time when they are already in dire straits."
While Ed and many others warn of the negative consequences, it should be noted that many experts believe the contracting and self-employed sector will bounce back over the coming months.
The resolve of self-employed workers, who have been hit hard by the pandemic, has been commended by many and Seb Maley, the CEO of Qdos, shared his optimism: "The introduction of IR35 reform is a historic moment.
"It marks the culmination of years of the government chipping away at contractors, who have shown tremendous resilience and a determination to continue working this way. But while reform poses challenges to contractors and the businesses who rely on them, I am confident that contracting will survive.
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"In recent months the tide has turned, with thousands of businesses now aware of the fact that IR35 reform is manageable.
"These firms, who have prioritised compliant IR35 status decisions and will continue engaging contractors, are set to gain a huge advantage over those who have banned contractors because of the changes - a short-sighted and totally needless decision.
"Despite IR35 reform and the problems the changes create, I am optimistic about the future of contracting.
"The economic climate, the changing makeup of the workforce and the growing demand for flexible, skilled and cost efficient workers suggest contracting is here to stay in spite of these changes."
Similar sentiment was shared by Dave Chaplin, the CEO of ContractorCalculator and IR35 Shield, who issued guidance to businesses and contractors alike: "With the Off-Payroll legislation going live in the private sector today, we know that 60,000 businesses, 20,000 agencies and 500,000 contractors are set to be impacted by the new tax statute. Hirers have had years to get ready but some have left it until the last minute. In an IR35 Shield survey we conducted at the start of the year amongst 3000+ contractors, 52 percent said that they were still yet to be assessed and 23 percent said their client had imposed a blanket ban on limited company contractors.
"However, the dust will settle and businesses will soon recognise the Off-Payroll bogeyman for what it is. Once some begin to test the water by engaging limited company contractors, others will undoubtedly follow, not least because the flexible workforce is the bedrock of UK plc and the UK economy.
"Contractors provide vital skills on an 'as needs' basis and once businesses overcome any overly heightened fears they have, they will turn to limited company contractors again as they recognise the practical and commercial benefits they bring. I would urge contractors to hold their nerve and for those hirers who are not prepared, it may be prudent to terminate or pause any existing contracts with contingent workers immediately and then start assessing them before they continue their work.
"Contractors should still be able to secure 'outside IR35' engagements and firms should have nothing to fear provided they follow the highest standards of IR35 compliance. Hirers and contractors can work together to ensure their working relationship remains 'outside-IR35' and carry out this five-point plan: (1) assess IR35 status comprehensively; (2) ensure the contractual terms align with the relationship; (3) agree and sign a Status Determination Statement (SDS); (4) make sure the engagement operates in alignment with the original intent; (5) monitor and collate supporting evidence throughout the contract. By applying best practice, firms can pick from the front of the talent queue and access the best contracting talent with confidence."