Campaigners are disappointed after MPs voted against delaying controversial reforms for self-employed in the private sector, which contract workers fear will land them with a higher tax bill or even affect their opportunities to find work.
Freelancers who operate through a limited company had wanted changes to the IR35 legislation to be postponed until 2023-24, but the amendment did not gain enough support from MPs at the Report Stage of the Finance Bill on Wednesday evening. It means the reforms will almost certainly be implemented from April 2021.
“IR35 reform in the private sector has effectively now been signed off and will arrive in April 2021. Despite concerns raised by a number of MPs, who rightly exposed the flaws of this legislation and made it clear they do not believe changes are necessary, it seems there’s no turning back now,” said Seb Maley, CEO at IR35 adviser Qdos.
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“The reform is short-sighted and, if mismanaged, poses a risk not just to contractors but to hiring organisations and recruiters. It’s therefore up to private sector firms to prepare for the changes, which can be managed with the right approach. However, work must start immediately – I can’t stress enough how important this is.”
What are the IR35 changes?
Changes to IR35 had been due to start in April 2020, but they were delayed for one year due to the coronavirus pandemic.
The legislation is designed to clamp down on contractors who essentially operate in a similar way to employees but work through limited companies for tax purposes. Under the reforms, medium and large private businesses will become responsible for judging whether their contractors fall inside or outside the scope of IR35, rather than the workers themselves.
Some contractors are concerned they will be found inside IR35 incorrectly, which means they will have to pay the same level of tax as employees but not necessarily gain any employment benefits, such as holiday pay.
But the forthcoming changes have also impacted how some private companies are operating, with reports that they are already avoiding working with contractors. Businesses may fear the financial consequences of wrongly judging a contractor to be outside IR35.
Mr Maley said it was important for companies to “avoid risk-averse policy decisions and instead prioritise fair and considered IR35 status assessments”.
‘Unnecessary burdens on business’
The amendment to postpone the IR35 legislation for the private sector until 2023-24 was tabled by the Conservative MP for Haltemprice and Howden, David Davis.
He told MPs on Wednesday: “It is very unlikely that the economic crisis we are facing will be over by April 2021, and attempting to implement IR35 will cost jobs and do serious economic damage.”
Mr Davis added: “It is right not to impose unnecessary burdens on business at a time like this.”
But MPs voted against the amendment.
An amendment to delay was also defeated in May during an earlier stage of the Finance Bill.
The bill is expected to conclude its passage through the House of Commons on 2 July 2020, after which it will be discussed in the House of Lords.
Dave Chaplin, director of The Stop The Off-Payroll Tax Campaign and CEO of ContractorCalculator, said: “It is very disappointing that after four years of campaigning we have not achieved the primary aim of stopping this legislation.”
Mr Chaplin said that the industry now had a chance to properly prepare for the changes.
“Moving forward, the market now needs to prepare and, with careful planning, firms have nothing to fear and can hire freelancers compliantly. We have already had a dress rehearsal, and many firms and contractors saw what would happen if they did not prepare properly. We now need to work together to avoid a cliff edge scenario.
“Provided firms work with specialists in this field, they should have nothing to fear,” he added.