The Association of Independent Professionals and the Self-Employed has said new research reveals the extent of business anxiety about the changes to IR35 and called for the next government to “pause” incoming legislation.
IPSE was responding to research conducted by recruitment specialist Robert Half UK, which showed three in five (62 per cent) medium and large private sector businesses were concerned about missing out on skilled contractors when IR35 is expanded to the private sector from 6 April 2020.
The survey, carried out among 398 senior decision makers in medium and large private sector businesses in the UK, found 42 per cent were also worried about losing their current freelancers if they could not renegotiate their contracts in time.
Andy Chamberlain, deputy director of policy at IPSE, said: “The next government must, as a matter of urgency, hit the pause button on this legislation, which will be damaging not just to freelance contractors and the businesses they work with, but to the UK economy as a whole.”
IR35, which was introduced in 2000, is an anti-tax avoidance rule that applies to all contractors and freelancers who do not fall under HM Revenue & Customs’ definition of being self-employed.
From April 2020, every medium and large private sector business in the UK will become responsible for setting the tax status – or IR35 – of any contract worker they use, as a result of changes introduced in last year's Budget.
One third, or 33 per cent, of survey respondents said the demand for temporary workers will increase, with just 7 per cent anticipating a decrease ahead of the reforms in April next year.
Mr Chamberlain said: “This survey lifts the lid on just how worried UK businesses are about the IR35 changes. Ever since the changes were announced, IPSE has warned they will significantly restrict the supply of flexible labour to businesses that rely on it.
“The lessons from the public sector, where these rules have been in place since 2017, are clear to see. Hirers have found it extremely difficult to balance IR35 compliance with retaining and attracting vital specialist resource.”
This is not the first time concerns about the reforms to IR35 have been raised. In August, research carried out by contractor accountancy QAccounting found 85 per cent of contractors do not believe the taxman understands the repercussions of the changes on the workforce, with only 9 per cent satisfied it does.
A number of IR35 court cases have been won by HMRC, although it lost two IR35 cases more recently in October.
In a decision published on October 25, the First Tier Tribunal allowed TV presenter Helen Fospero’s appeal against a previous IR35 decision, which ruled that she had to pay income tax and national insurance contributions to the sum of £80,770.
On October 29, HM Revenue & Customs lost its case against an IT consultant whom it deemed liable for £243,000 in tax under IR35 legislation.