The Recruitment and Employment Confederation (REC) has responded to the Chancellor’s announcement of an earlier-than-usual budget with its own budget submission warning the Government not to rush through public sector-style IR35 tax reforms for contracting professionals working in the private sector.

The submission includes damning evidence of the impact of the reforms on the public sector and cautions that, if extended to the private sector, they could prove counterproductive for the Treasury and destructive to the jobs market just as it requires as much support and certainty as possible with formal Brexit nearing.

The report contains a new survey of REC members that found the following:

  • 72% of REC member recruiters participating in the poll reported serious fears that early implementation of IR35 in the private sector would generate a rise in tax avoidance schemes and intermediary models.
  • 42% reported that they had already seen a rise in the number of non-compliant umbrella company/intermediary models since the reforms were hurriedly imposed on the public sector in April last year. This is clearly bad news for the majority of well-run, compliant umbrella companies who can be undercut be rogue operators and have their reputations tarred with the same brush.
  • 72% reported that early implementation of the reforms in the private sector would decrease flexibility in the labour market, making it less capable of responding to changing conditions.

Affirming that everyone should pay the right amount of tax, REC CEO Neil Carberry warned that the hasty implementation of poorly-crafted reforms to contractor tax in 2019 could be “a gift to the unscrupulous” by encouraging rogue operators who use tax avoidance schemes rather than workers and umbrella companies who do the right thing.

As many REC members had seen a rise in these rogue schemes in the private sector since the reforms were imposed last year, he said: “the vast majority of recruiters are clear that the Government needs to pause for thought on IR35”.

He added: “The ongoing employment status review should be completed before any changes are made. And with Brexit causing uncertainty for all UK business, the government can ill afford to introduce reforms which risk damaging the flexibility of the labour market at a time like this.”

Carberry went on to urge the Government to undertake a full impact assessment of the public sector reforms before proceeding with their implementation in the private sector.

Far from increasing compliance, he noted, the reforms appear to have significantly driven up non-compliance among rogue intermediaries. In turn, this results in an uneven playing field for compliant umbrella companies, recruiters, employers and contracting professionals, with the taxpayer losing out as well.

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