In IR35

Julia Kermode, CEO of Umbrella Company trade association the Freelancer and Contractor Services Association (FCSA), has warned in The Telegraph that reformulated public sector IR35 rules introduced in April last year are likely coming to the private sector shortly and will “unfairly penalise businesses.”

Observing that many millions of businesses in the UK draw on a pool of flexible, skilled, short-term talent in the form of interims, consultants, contracting professionals and other non-permanent staff, Ms Kermode urges private enterprises to be fully cognisant of the changes to IR35 regulations, as they may have a “serious impact” on them.

In Britain, 23% of the workforce is currently choosing to work on a contingent, project-by-project contracting basis rather than as salaried employees. Kermode is blunt that IR35 reforms in the public sector “are having a devastating impact.” The highly-prized flexibility of this increasingly important segment of the UK workforce has been appreciably reduced as a result, affecting all parties.

In stark words, Ms Kermode states that implementation of the changed regulations has not gone well. Red tape has increased significantly, as has the time and resources needed by employing organisations to administer the change. The legislation governing who is to be determined as inside or outside IR35, she emphasises, is exceptionally complex. Prior to the reforms, this legislation did not affect employers. It now does.

The reforms, Kermode notes, have had the following effects:

  • Rising costs – employers are increasing wages in an attempt to attract and retain a flexible workforce, in light of the IR35 changes, yet this has not caused a proportionate increase in productivity. This effectively means more money for the same output.
  • Sought-after contractors abandoning the public sector, with acute skills shortages arising as a direct result
  • Individual incomes of the large numbers of contractors redesignated as inside IR35 being slashed drastically

The rise of dubious tax avoidance schemes targeting those affected that would not have arisen had the reforms never been introduced

Kermode points out that several major projects have been put on the hold while public sector bodies struggle to handle the IR35-induced skills shortages. A recent example was Transport for London’s unavoidable decision to defer repairs to the more antiquated sections of the Underground system because so many contract workers had left.

She concludes:

“We expect that IR35 changes will be rolled out to the private sector, which will mean that 5.5 million businesses will be affected, in addition to more than 50,000 public sector bodies already affected. In essence, HM Revenue & Customs will be delegating its enforcement role to businesses, which is not only fundamentally wrong but also unnecessary if HMRC properly implements its existing powers.”

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