HMRC has launched a consultation about how to address bogus employment in the private sector, including the possibility of extending the controversial IR35 rules.
The move has drawn sharp criticism from self-employment advocates who say they will do all they can to oppose it. HMRC says the consultation is about preventing disguised employment by freelances and contractors. IR35 has proven very controversial in the public sector where it was introduced last year. There have been a number of legal cases involving contractors who have been asked to pay large amounts of tax, often after being forced to contract out, meaning they have lost basic employment rights.
HMRC says the consultation will specifically look at how to increase compliance with the existing ‘off-payroll’ working rules. It states: “These rules mean that contractors such as IT and management consultants who work through their own company but are in practice employed by a third party, pay the right tax as employees.”
HMRC believes that the taxpayer could be missing up to £1.2bn a year by 2023 as a result of people getting the rules wrong, and incorrectly paying tax as if they were self-employed. It says the consultation will look at how to make these rules work better and that “the genuinely self-employed” will not be affected.
Financial Secretary to the Treasury, Mel Stride, said: “It’s very important that we recognise the hard work of contractors across all sectors, who contribute to our growing economy. But it’s also right that we have a fair tax system that balances efficiency and simplicity for taxpayers, while also supporting our vital public services.”
HMRC says IR35, which was rolled out in the public sector last year, has successfully increased compliance and brought £410 million in additional revenue for the taxpayer. However, campaigners say it has led to many contractors fleeing the public sector.
HMRC says no decisions have been made about whether to roll out IR35 in the private sector and is about how the rules can be improved for the private sector as well as alternative options for addressing non-compliance.
Chris Bryce, CEO of the Association of Independent Professionals and the Self-Employed, which has been very critical of IR35, said: “For the Government to even consider introducing the ill-judged changes to IR35 in the public sector to the private sector before their full impact can be truly analysed is outrageous.
“It would be a fatal blow to the UK’s flexible economy. IPSE’s research – which suggests large numbers of contractors are walking away from the public sector, with a particularly bad effect on the NHS – paints a very different picture from the Government’s report.
“It is shameful that the Government did not publish the external research into the impacts of the public sector changes prior to announcing this consultation.”
Pointing to a recent case where HMRC was found to have mistakenly interpreted a person’s IR35 status, he added: “The Government is kidding itself if it thinks HMRC’s online tool – which it encourages people to use to determine their IR35 status – can be relied upon. For the sake of our economy, IPSE will fight this proposal all the way.”