The new IR35 rules are a "muddle" and could damage Britain's entrepreneurial spirit, a panel of experts has warned.
Susan Ball, partner at RSMUK, and deputy president of the Chartered Institute of Taxation, told the latest FTAdviser In Focus podcast the new rule changes to IR35 were creating significant problems for both companies and individuals.
She said: "How you determine status is really important, not only for the tax rules but also for employment law and the obligations that go with that.
"It is a muddle, frankly. Even in court, judges are looking at the same facts and determining differently, so how is the man on the street meant to work out someone's status and get it correct?
"The question needs to be resolved so people can work out properly whether someone should be on-payroll or off. Everyone's struggling with this."
This is just as pertinent for medium-to-large advisory companies that have often been outsourcing work such as HR to freelances or contracting out paraplanning services, she said.
"It is a mess," Nimesh Shah, chief executive of Blick Rothenberg, agreed, lambasting the "woolly guidance" on HM Revenue & Customs' website and criticising HMRC's online tool that is the only one the Revenue is standing by to determine status. "It is quite inadequate," he said.
Fellow panellist Justin Small, founder of the Future Strategy Club, said not only was it a confusing rule change, but also risked damaging the thriving freelance and self-employed sector in the UK.
He said: "Genuinely they are concerned about paying tax at source. It cuts their direct income by 30 per cent. Before April, the individuals could determine whether they were in or outside of the IR35 rules, but now this is presenting serious concern and making it more complicated [to go freelance].
"From a government that claims to be pushing entrepreneurship, this [rule change] is a deflation of that, in my view."
He warned the new rule, therefore, could hinder that entrepreneurial spirit at a time when freelance was starting to be seen as the "future of work".
"The problem is when you are self-employed or working for many different companies, this now makes you almost like an employee without the benefits."
Small said for a freelance contractor it presented significant financial problems, because someone is being taxed as an employee but not getting holiday pay or a pension. So now, he added, with Covid-19, you are worried about potentially losing work, as well as now getting taxed like an employee.
Shah echoed Small's concerns: "We are seeing that many firms – banks, large advisory firms, fund managers – who have often used contractors are now applying a carte blanche approach and treating people as if they are employees.
"This is then contracting the opportunities for self-employed and freelances. It is a big change for the private sector."