The government has repeatedly claimed that the so-called “contractor tax”, IR35, has no adverse effect on micro-business owners who are genuinely self-employed.
Those within the staffing industry and the professional contracting community who have been keeping a close eye on IR35 matters will hardly be surprised at the latest re-assertion of official ‘wisdom’ on the issue, although many will find it deeply frustrating. The claim was made by the Financial Secretary, Mel Stride, speaking on behalf of the Treasury in response to a parliamentary question about the impact of IR35 on small businesses.
Stride began his reply with the blunt statement, “The off-payroll working rules (sometimes known as IR35), do not affect small business owners who are genuinely self-employed.”
He went on to say that the radically reformed rules, which were rushed through in the public sector last April, will only affect people who say they are independent contracting professionals but would actually be employees if engaged directly.
The newly reformed rules, he said, were implemented in the public sector last year in order to curtail what he claimed was “widespread noncompliance”. This assertion was intensely disputed by industry insiders at the time, including Umbrella Company trade association the Freelancer and Contractor Services Association (FCSA), contractor tax consultants Qdos Contractor and the online information service for contractors, ContractorCalculator.
Mr Stride went on to say that currently, the reformed rules only apply to public sector organisations and recruitment agencies or other intermediaries who supply labour to the sector. The government, he said, was assessing the effects of the public sector reform, including externally commissioned research. The findings are scheduled to be published this year.
Seb Maley, CEO of Qdos Contractor, viewed Mr Stride’s reply as yet further evidence that the government has no understanding of the true impact of the reformed IR35 rules on the public sector and the country’s two million independent contracting professionals
Noting that, theoretically, IR35 should not affect truly self-employed people, he went on to underline the fact that, in practice, the story had been wholly different. He explained that several public sector bodies, including the NHS, had resorted to blanket decisions to protect against liability when the reforms were hastily implemented last year, resulting in entire contractor workforces being placed inside IR35.
“This, along with many inaccurate IR35 decisions, placed many genuinely self-employed contractors inside IR35, resulting in the workers paying similar taxes to employees, but without any of the benefits.
“The Treasury’s attitude towards IR35 is short-sighted – a real concern given private sector reform increasingly looks on the cards.”