Umbrella companies respond to Chancellor’s private sector IR35 confirmation
by Alan Little
As many stakeholders and industry experts have both feared and expected, Chancellor Phillip Hammond confirmed in his budget yesterday that IR35 reforms will be extended to the private sector.
The crumb of comfort for private enterprises, recruiters and contracting professionals is that the reforms will not arrive until April 2020, allowing businesses and freelancers some preparation time.
The new rules will apply to large and medium-sized enterprises only.
Julia Kermode, CEO of umbrella company trade association the Freelancer and Contractor Services Association (FCSA), said that the decision to delay the rollout until 2020 indicated that the Treasury had taken on board the concerns of stakeholders, who campaigned vigorously to allow sufficient preparation time.
Describing the decision to confine the reforms to large and medium-sized businesses as “foolhardy”, Ms Kermode pointed out that large firms are exactly the ones that are least equipped to absorb the reforms, as their IT infrastructure is not designed to manage the complexities of paying tax and NICs to contractors.
Paying off-payroll workers’ invoices requires both accounts payable and payroll software to “talk to” one another, she explained, adding that most big firms simply don’t have this functionality in place. They will need a major IT development programme to accommodate the changes and, despite the welcome 18-month lead-in time, they will need to embark on this project very soon, even while grappling with Brexit-related issues, she said.
Ominously, Kermode warned that an “exponential proliferation” of tax avoidance schemes will undoubtedly follow the reforms, as has already happened in the public sector. She continued: “With a reduction in income, large numbers of contractors working in the public sector have been enticed by non-compliant tax avoidance schemes that reduce their tax and NI contributions by disguising remuneration as ‘something else’ such as annuities, loans or even marketing vouchers.”
She urged contracting professionals never to be seduced by these schemes as tax and NICs will still be due and HMRC will pursue all individuals it believes owes these taxes. The FCSA, she added, will go on lobbying for all of these schemes to be eradicated before IR35 arrives in the private sector.
Meanwhile, Crawford Temple, CEO of umbrella company trade body PRISM, said that the Chancellor had missed an opportunity to reform the tax system to align it with the world of modern employment, and had opted instead to apply another sticking plaster.
The time interval granted the Chancellor a chance to reform the tax system, which he failed to seize, he said, adding: “This shows a real lack of understanding of business and a lack of ambition to build a tax framework fit for a post-Brexit world.”