The government today made a minor tweak to pending IR35 changes, saying the new off-payroll tax changes will only apply for services provided on or after 6 April 2020, as concern mounted about the impact on IT contractors and projects.
Previously, the rules would have applied to any payments made on or after 6 April 2020, regardless of when the services were carried out.
The news comes amid a growing crisis around the changes, and as a House of Lords select committee prepares to scrutinise the legislation. Freelancer confidence meanwhile has been “fallen off a cliff”, a new survey showed.
IR35 tests whether freelancers/contractors should be classed as employees for tax purposes. From April 6, 2020, private businesses will be responsible for determining the employment status of contractors. Many are refusing to make individual assessments and just ending the use of contractors outright.
(The rules have applied to the public sector since 2018. Many contractors switched to the private sector at the time. They have now run out of road. Most are reluctant to go PAYE for numerous reasons including working flexibility).
One contractor emailed Computer Business Review to say: “My employer went bust in August. I am a highly skilled IT worker but there is no work. Jobserve are advertising 326 vacancies, but 10 agencies chasing each position – so more like 32. The Government is going to create mass poverty with the IR35 legislation…
They added: “In the meantime, I applied for a position with the DWP that was inside IR35. As part of the screening process, I was asked if I would sign a document to come outside the working time directive. When I said I was not willing to come outside the working time directive, the job dried up and I heard nothing back.”
James Poyser, CEO of online accountants inniAccounts said: “It’s too late for many contractors who’ve already ‘left the building’. We know from a poll done this morning 1 in 10 have already left. For those left, it grants clients just three more weeks: contactors need to give notice at the end of February to get all work done by end of March.”
He added: “So it’s fair to say it adds to the mess. HMRC probably know it’s flawed, but are trying to take measures to resolve the crisis. sadly as many of the comments from people effected on offpayroll.org.uk show its too little, too late. We need a massive reset on it all. Livelihoods, lives and UK Plc is at huge risk if we don’t take action now.”
Change “Doesn’t Go Far Enough”
Matthew Sharp, a tax specialist at European law firm Fieldfisher, noted: “The government’s announcement today that changes to off-payroll working rules will only apply to services provided on or after 6 April 2020, excluding payments made for work prior to this date, is a welcome clarification, but does not go far enough.
“While this change gives private sector businesses and contractors who stand to be affected by the new legislation a little more time to prepare, the government has so far failed to address core concerns regarding IR35.
“Many of the clients we work with have expressed frustration with HMRC’s process for determining employment status for tax purposes, and this announcement reveals no plans to improve this. It seems the government has not learned from the mistakes made in 2017, when IR35 was rolled out to the public sector, resulting in legal wrangles that are still going through the courts today.
He added: “Many businesses fear losing vast swathes of their workforce if the processes for assessing tax status is not adjusted to reflect the realities of modern working practices.”
Freelancers’ confidence in their businesses over the next three months has been driven to a six-year low by Government tax policies and regulations relating to freelancers, according to IPSE (the Association of Independent Professionals and the Self-Employed) and PeoplePerHour’s Confidence Index on Thursday.
Freelancers’ earnings have also dropped by six percent this quarter, and they expect them to continue to fall, while 71 percent also expect their business costs to rise over the coming year. Inna Yordanova, Senior Researcher at IPSE said: “Freelancers’ confidence in their business performance has reached record lows and this seems to be because of fears about the changes to IR35 due in the private sector in April.
She added: “This alarming slump in freelancer confidence should be a wake-up call to government. The changes to IR35 are causing alarm right across the freelance sector and they should be halted before they do serious damage.”