The draft Finance Bill includes legislation to roll out IR35 reforms to the private sector.
The Government is pushing ahead with its plans to roll out IR35 tax legislation to the private sector, despite strong opposition and fears for the impact on freelancers and contractors.
The Government published its draft Finance Bill today. It foresees the roll-out of the tax legislation to large and medium-sized private sector firms from April 2020.
IR35 aims to prevent freelances and contractors who essentially function in the same way as permanent staff, and their employers, from paying less tax.
The legislation means employers will have the responsibility for determining whether any contractors they use fall under IR35 legislation, making them liable to a higher rate of tax.
The roll-out is expected to affect 170,000 people who work through their own company. It was first rolled out in the public sector leading to a large number of contractors switching to the private sector.
The Treasury says the government has raised £550m in Income Tax and National Insurance contributions in the first year since it was introduced.
The changes will affect contractors supplying their services through an intermediary, such as a personal service company (PSC), who would be employed if they were engaged directly as well as the employers who hire them.
Recruitment agencies and other intermediaries supplying staff through PSCs will also be hit by the legislation.
Contractors have said the experience in the public sector is that employers have made blanket IR35 decisions and argue that if they are to be treated as employees for tax purposes they should have similar employment rights.
IPSE’s CEO Chris Bryce said: “Recent research shows how crucial freelancers are for companies to create, innovate, improve productivity and compete on the global stage.
“Extending these rules will put a huge extra burden on organisations which depend on the use of highly-skilled flexible workers to help them succeed. With such short notice, the Treasury has left businesses to choose between access to the skills they desperately need and trying to rush implementation of rules even HMRC itself doesn’t understand.
“The impact on freelancers will be no less serious. Many now risk being pushed into quasi-employment against their will. They’ll be paying into the system like employees but will be denied any of the protections which go with employment. This fundamentally undermines the principle of no taxation without rights that many people understand as the basic fairness in our system.”