The Freelancer and Contractor Services Association (FCSA), the trade body representing Umbrella Companies, has submitted its official response to HMRC’s controversial proposals for public sector IR35 reform.
HMRC’s proposals will apply to all businesses supplying staff to the public sector if the latter are not paid via RTI payroll – i.e., contracting professionals, interims and other freelancers who are self-employed and engaged to take on specific projects. The Revenue plans to place responsibility for determining whether such individuals are inside or outside IR35 on public sector hirers.
Any reform to IR35, the trade body says, should not only encourage such compliance but also preserve the flexibility and entrepreneurship of the freelancing and contracting workforce. But the imposition of liability on a party who has minimal information to complete an accurate IR35 assessment will lead to unintended and harmful consequences, including incorrect tax liability calculations, Personal Service Companies (PSCs) struggling to recover overpaid tax and the creation of deemed employment.
FCSA CEO Julia Kermode said: “The proposed change shifts liability for IR35 status from the individual contractor to an unconnected collection of parties who are less well placed to come to any true conclusion about an individual’s working practices. No one party in the supply chain holds sufficient information alone to make a complete and accurate assessment of the application of IR35, so implementing HMRC’s proposals properly will require all parties to share timely information which we believe will be difficult to achieve in practice.”
The FCSA advocates a far simpler solution: extending the existing framework detailed in the Treasury Directive PPN 08/151 to all off-payroll staff in the public sector. Evidence indicates that this is most effective. Research undertaken by the Public Accounts Committee found that HMRC received satisfactory assurances from the overwhelming majority of cases examined (2,248 out of 2,505 – a tax compliance rate of 90 per cent).
Ms Kermode said that the proposed changes will fail to level the playing field and will be impossible to implement.
She cited evidence that, should the reforms proceed, contractors will be less likely to choose public sector assignments at a time when “the public sector is already stretched and relies on the invaluable skills of the flexible freelance workforce.”
Ms Kermode added that this is especially worrisome in light of the work required to manage Britain’s exit from the EU, which will need an exceptionally skilled team to negotiate and manage the change. By definition, these workers will not be permanent employees.
She concluded: “It is unthinkable that Government might be prepared to jeopardise this essential workforce at the current time, and I hope that policymakers will listen to our concerns.”