The government responds to an employment status consultation held four years ago, confirming that contractors operating inside IR35 will not receive employment rights despite paying employment tax
It means the government has effectively refused to abolish ‘zero rights employment’, said employment status expert, Qdos, following the consultation report.
The company’s CEO, Seb Maley, responded, “This response is astonishing, even for this government.”
This long-awaited response to the employment status consultation, which was held from 7th February 2018 to 18th June 2018, was published alongside new guidance to help bring clarity regarding employment status, both for workers and businesses engaging them.
Following IR35 reform, thousands of contractors have been placed inside IR35, which sees they become ‘employed for tax purposes’ and pay Income Tax and National Insurance at the rate of an employee but without receiving any employment rights in return, explained Maley.
While the consultation still leaves a fog of uncertainty over the validity of no employment rights for umbrella company workers who are paying the same as salaried employees in tax, something is crystal clear: The Treasury and the current government are not prioritising the country’s business environment when it comes to freelancers and startups, two cogs of any country’s labour force that build up economies in good times and bad.
Why does the government choose to treat freelancers this way?
The message was apparent in the consultation response, where the government states that while it recognises “there could be some benefits to greater alignment between the two systems” (tax status and employment rights), “now is not the right time to bring forward proposals for alignment between the two frameworks.”
“IR35 reform has seen tens of thousands of genuinely self-employed contractors left with no choice but to work inside IR35, where they are taxed as employees and can pay anything up to 30% more in tax. Yet still, these workers will not be granted employment rights in exchange. If now isn’t the right time to align tax and employment status, when is?” asks Maley.
Dave Chaplin, CEO of tax compliance firm IR35 Shield mirrors the disenchantment of freelancers and the companies that hire them following the news of the report.
“Today’s report makes for very disappointing reading. After spending over four years since the consultation closed on 1st June 2018, the Government has carefully considered all 162 responses and published a 32-page document which effectively says, ‘We have decided to do nothing’.
The latest Prime Minister candidate debate between Rishi Sunak and Liz Truss was largely focused on building back the economy and rejuvenating town centres. But they forgot to mention that it takes a village of self-employed people and small business owners to keep those High Streets going, on both sides of the till.
IPSE research has revealed that the solo self-employed – individuals who run their own business, operating as a sole trader or in a partnership and do not have any employees – contribute an estimated £303 billion to the UK economy.
However, now that Off-Payroll rules apply and these contractors are often forced into pseudo umbrella company employment, their earning power has diminished and that means fewer tax revenues for HMRC.
This latest employment status consultation report will just add fuel to the fire of small company owners’ troubles and arguably cost the Tory Party millions of freelancer and small business owner votes in the next General Election, as previously reported by The Freelance Informer.
“The fact that it’s taken more than four years for the government to respond to this consultation is another slap in the face for contractors,” said Qdos’ Maley.
“Sadly, it shows just how far down the list of priorities contractors are for this government, which has already burdened independent workers with a raft of tax hikes and IR35 reform,” he said.
Refusing to abolish what’s known as zero-rights employment is unjust, illogical and a huge oversight. In the race to become the next Prime Minister, the candidates would be wise to take into account the damage that this ill-thought-out policy is doing.Seb Maley, CEO Qdos
“I couldn’t tell you where Liz Truss stands on IR35, but contractors won’t need to be reminded that both Truss and Rishi Sunak were figureheads of a government that introduced IR35 reform in the private sector in 2021.
“Whether it’s Truss or Sunak, the new Prime Minister must stimulate economic growth – that’s a given. And so, both candidates would be wise to consider the true impact of IR35 reform, not just on contractors, but on businesses engaging them and the wider economy too.
“The government have made clear their stance on zero rights employment and that no action will be taken to align tax status and employment status. This is an oversight, as far as I’m concerned and one that, along with rethinking how this crucial sector of the workforce is taxed, needs to be addressed,” said Maley.
Why is the government kicking the can to nowhere?
Chaplin finds the inaction of the government, “curiously” odd.
“Curiously, against the backdrop of introducing the Off-payroll reforms, which, in April 2021, forced 60,000 businesses to assess the status of some half a million freelancers, the Government is now stating:
“..the benefits of creating a new framework for employment status are currently outweighed by the potential disruption associated with legislative reform. Although such reform could help bring clarity in the long term, it might create cost and uncertainty for businesses in the short term, at a time where they are focusing on recovering from the pandemic.”
“It appears to me that the Government has inadvertently admitted that it perhaps should have agreed to the proposed further 2-year delay before rolling out the Off-payroll reforms into the private sector, at the time when the country was mid-pandemic and is still recovering.
In addition, the country is still reeling from the impact of Brexit. Off-payroll, Covid and Brexit have been punishing for the UK economy, and it seems the Government is only just waking up to that fact.
“Employment status is complex, and as previous Governments have done, this topic is being filed into the “too difficult to deal with” drawer,” said Chaplin.