More voices have joined the chorus of condemnation arising from the Chancellor’s decision to press ahead with controversial reforms to IR35 legislation and abolish the five per cent tax-free allowance for contracting professionals working in the public sector via personal service companies (PSCs).
Both decisions are widely perceived by industry experts as needless attacks on hardworking contractors, who have thus far been prepared to sacrifice employee benefits such as paid holiday leave, statutory maternity allowance, paid sick leave and employer pension contributions in exchange for modest reductions in tax.
The Chancellor justified removing the five per cent tax-free allowance on the basis that, since the IR35 reforms will move responsibility for determining tax status away from the contractor and onto the intermediary paying the worker’s company (recruitment agencies or, in some instances, public sector end-clients), such workers will no longer be responsible for bearing the administrative burden of determining whether IR35 rules apply.
Julia Kermode, CEO of Umbrella Company trade association the Freelancer and Contractor Services Association (FCSA), said that she and her colleagues are furious at the abolition of the five per cent tax-free allowance for off-payroll public sector workers.
She added: “The new complexities around IR35 status means that professional contractors and interims will be forced into making deemed payments throughout the year, which in turn means that they will need more accountancy support going forwards to reconcile their financial affairs, and therefore more justification for the 5% allowance.”
Contractor Calculator founder and CEO Dave Chaplin warned recruiters who placed contracting professionals in public sector roles lasting six months or more that they should be managing the change with immediate effect.
He said: “The impact could see people putting up their rates and clients could be lost so it is in the interest of recruiters to ensure that the contractors are outside IR35 – recruiters need to be working with the public sector, hirers and make them aware of the risks ahead.”
Chaplin took issue with Mr Hammond’s use of the phrase “different levels of tax for people doing the same jobs,” which implies that freelancers and contractors are somehow obtaining undue tax advantages. Such a view ignores the fact that these workers are taking the risk of working independently without seeking any employment protections.
Adding to his initial response to the Autumn Statement, the CEO of IPSE (the Association of Independent Professionals and the Self-Employed), Chris Bryce, described the IR35 decision as an unfair measure that will prove so damaging that IPSE has no intention to stop being vocal about it, pointing out its flaws and holding the Government accountable to ensure that it acknowledges the problems it will cause.