Indications that the Chancellor is planning to extend controversial public sector IR35 reforms to the private sector, possibly with an announcement in the next budget, have been met with angry responses from the professional contracting community.
Kamal Ahmed, Economics Editor at BBC News, yesterday reported that the Treasury is now finalising plans to extend the reforms to self-employed people in the private sector. He cites Treasury estimations that a third of contracting professionals operating via personal service companies are in reality de facto employees and should be paying more tax. HMRC, he reports, estimates that the public sector reforms raised an additional £410 million.
In addition, Ahmed refers to Treasury claims that, without IR35 reforms in the private sector, high levels of non-compliance with tax rules will deprive HMRC of significant tax revenues. No evidence is supplied to support these assertions, however.
Responding to the news, Dave Chaplin, CEO and founder of ContractorCalculator, an online news and support service for contracting professionals, dismissed Treasury claims that it was losing money as the outcome of an “ideological flaw”. It fails to recognise the “freelance premium” that contracting professionals charge for their services compared to what they would be paid as full-time salaried employees.
That alone, he continued, should “blow IR35 out of the water”, but HMRC insists on claiming that individual contractors are dodging tax. He added: “This isn’t true. HMRC’s own calculations demonstrate that 84% of the perceived tax loss where an individual is engaged via a personal service company results from the hiring organisation not having to pay employer’s national insurance.”
Even with this clear evidence to the contrary, HMRC keeps repeating that contracting and freelancing workers are responsible for this perceived deficiency.
Meanwhile, Andy Chamberlain, Deputy Director of Policy at the Association of Independent Professionals and the Self Employed (IPSE) agreed with Mr Chaplin, dismissing Government figures as “spurious” and “plucked from thin air”.
Emphasising the contradiction between the Chancellor’s remarks a fortnight ago that the Conservatives “have business at its core” and a business-damaging measure like IR35, Chamberlain referred to the unanimity amongst business groups that they will not be ready to put these complicated reforms into practice as early as April 2019.
If the Chancellor opts to steam ahead with the reforms, he will be directly opposing the very businesses he pledged to support at the Conservative Party Conference, he said, adding: “Rather than properly taxing large multinational companies, the Government is loading the gun against the self-employed.
“IR35 is an extraordinarily myopic policy; it is a short-sighted tax grab that will cause untold economic damage in the long-term”