IR35 reforms are “misaligned with Conservative values and impede growth”, say freelancer advocates and MPs
Freelancer advocates and companies serving the growing UK solo self-employed workforce are holding on to hope that the Chancellor’s Spring Budget on March 15th will reverse or at the very least address some of the damage created by IR35 reform and HMRC’s CEST tool.
John Redwood MP, a Conservative Party backbencher put his neck out for the self-employed a few weeks ago in an interview, which was quickly shared across Twitter. It was a glimmer of what many self-employed Conservative Party supporters remember their party of choice was all about.
Like many entrepreneurs, hiring companies and freelancers across Great Britain, Redwood believes that the IR35 reforms should be reversed because the self-employed have got a ‘bad deal’ as a result.
“His observations are spot on – the legislation has inflicted damage on the economy, is holding back UK businesses and punishing the flexible workforce,” says Dave Chaplin, CEO of tax compliance firm IR35 Shield.
“In its current form, it is unfair, misaligned with Conservative values and impeding UK growth,” says Chaplin.
Redwood is also advocating increasing the £85,000 VAT threshold to help small company owners grow their earning power, but to equally help the Treasury. On his blog he wrote:
“The VAT threshold determining when a business must register to charge VAT is stuck at £85,000. This was the level Ministers were told the EU required. With rapid inflation, this is now a small amount. If a business makes a profit of 10% it has to register when it reaches £8500 of profit.
“Many small businesses now seek to keep their turnover below the ceiling, putting off taking on extra business. They do not want the extra costs of setting up a VAT system, reporting to HMRC, and dealing with VAT inspections when they want to be growing their business and serving customers. Some businesses look for ways to exceed the turnover threshold by accepting cash and not declaring any of that transaction for tax, so there is a loss to the tax authorities.
“At a time when we need growth and when we need the extra capacity of many kinds to supply more and help curb inflation, it would be a good idea to raise the threshold. Putting it up to £250,000 would be a big win, allowing many more businesses to do a bit more without the tax complication, and reducing tax evasion. Overall there would be more revenue growth as the extra business generated produced more taxable employment, more purchases of VATable items used by the businesses and their customers, and more profits tax on the successful businesses.”
The perils of Off-Payroll rules: “double-taxation is crippling”
“Off-payroll needs to be fixed or ditched to win back the trust of the self-employed and whilst we are unlikely to see a U-turn, some straightforward amendments to the law would go a long way to achieving that,” suggests Chaplin, who for years has been educating members of Parliament, HMRC and policymakers of the damage that IR35 has done to the UK economy, leaving many temp workers, freelancers and hiring companies exposed to an unregulated umbrella company sector.
“The double-taxation flaw is crippling,” he says. “It sees contractors and firms paying taxes on the same money and firms receiving tax bills four times more than they should. Surely, this is the antithesis of conservatism,” says Chaplin.
The contractor specialist says HMRC has known about this “flaw” since March 2018, but never “warned Ministers in its associated impact statement when the legislation was pushed through Parliament.”
“If the Government wants to entice the 50+ grey-haired army of professionals back to work, to apply their skills on much-needed UK projects, it will need to fix the mess that HMRC and the Treasury have made,” says Chaplin.
Off-payroll needs to be fixed or ditched to win back the trust of the self-employed and whilst we are unlikely to see a U-turn, some straightforward amendments to the law would go a long way to achieving that.Dave Chaplin, CEO of IR35 Shield
Crawford Temple, CEO of Professional Passport, an independent assessor of payment intermediary compliance is also not holding his breath about any grand gestures by the Chancellor to help alleviate the stifled self-employed workforce in his Budget speech.
“Whilst I don’t expect IR35 to make an appearance on the Chancellor’s agenda, I would urge him to take a long hard look at HMRC’s Check Employment for Status Tool (CEST) and finally recognise that it needs to be withdrawn from use,” suggests Temple.
He continues, “It must be the most expensive free tool on the market when you look at the eye-watering penalties that Government departments have faced over the last year or so because they used CEST and got the determinations wrong.”
Temple believes that whilst getting those determinations “wrong” it has “unfairly pushed contractors into PAYE roles as well as into umbrella working against their will.”
All told, the Off-payroll legislation and CEST have caused mayhem for the contracting workforce and hirers who have all been unfairly penalised as a result. HMRC needs to hold up its hands and admit that CEST is flawed, has been an abject failure, and must be ditched.Crawford Temple, CEO of Professional Passport
Why is HMRC so slow to legitimise the umbrella sector?
Temple says some of those workers have also been “duped into signing up for dodgy disguised remuneration schemes purporting to be umbrellas and the Government has been slow to take visible action to shut such schemes down.”
With plans shelved to introduce a Single Enforcement Body, Temple says it is more vital than ever that the “Government now demonstrates its commitment to stamping out non-compliance and malpractice in our industry – more resources and investment are needed if we are to clean up an industry that continues to attract negative headlines.”
Temple concludes, “All told, the Off-payroll legislation and CEST have caused mayhem for the contracting workforce and hirers who have all been unfairly penalised as a result. HMRC needs to hold up its hands and admit that CEST is flawed, has been an abject failure, and must be ditched.”