Don’t Blunder into Poorly Evidenced Contractor Tax Reform at Budget

The Recruitment & Employment Confederation (REC) Budget submission calls on the government to avoid rushing through changes to how contractors pay tax (IR35) in the private sector.

Citing evidence from public sector changes, the leading voice for the recruitment industry says they could be counterproductive for the Treasury and damage the jobs market at a difficult time for business with Brexit on the horizon.

A new survey of REC members, forming part of their Budget submission, indicates:

• 72% of members surveyed said that early implementation of IR35 in the private sector would lead to an increase in tax avoidance schemes and non-compliant intermediary models

• 42% of members surveyed said that they had observed an increase in the number of non-compliant umbrella/intermediary models since the introduction of the public sector IR35 reform in April 2017

• 74% of members surveyed said that early implementation of IR35 in the private sector would cause reduced flexibility in the labour market to adapt to changing conditions

Recruitment & Employment Confederation chief executive Neil Carberry says: 

“Everyone should pay the correct amount of tax. But rushing through poorly designed reforms to contractor tax in 2019 could be a gift to the unscrupulous – encouraging those who use tax avoidance schemes not those workers and companies who do the right thing. With many of recruiters seeing a rise in avoidance in the public sector since changes made last year, the vast majority of recruiters are clear that the Government needs to pause for thought on IR35.

“The ongoing employment status review should be completed before any changes are made. And with Brexit causing uncertainty for all UK business, the government can ill afford to introduce reforms which risk damaging the flexibility of the labour market at a time like this.

“The REC wants the Government to conduct a comprehensive impact assessment of the IR35 public sector reforms before progressing to the private sector. Worryingly, previous problems with unregulated intermediary company models have clearly worsened as a direct consequence of the reform in the public sector.”

REC members support government efforts to tackle non-compliance with IR35 and ensure that everyone pays the right amount of tax. Recruiters have repeatedly identified a rise in non-compliant umbrella/intermediary models and tax avoidance caused by the rushed IR35 reform in the public sector. This non-compliance creates an uneven playing field for compliant recruiters, the private sector, temporary workers and contractors – and the taxpayer loses out.

The REC is also asking that HMRC speed up investigations and implement an appeals process for contractors who disagree with their IR35 determination, while promptly closing down any intermediaries who promote or use non-compliance schemes. Clients should also have liability for the decisions they make on the tax status of contractors.

Ends

Notes to editors:  

1. For more information, contact the REC Press Office on 0207 009 2157/2192 or pressoffice@rec.uk.com. An ISDN line is available for interviews on 0207 021 0584

2. IR35 was introduced by the Government to ensure that anyone working  via their own limited company or another intermediary paid the correct amount of tax where the circumstances are that they would be deemed to be an employee (for tax purposes).

3. The REC urges the Government to adopt an approach to any private sector reforms that allows businesses adequate time to prepare, resolves the issues with the off payroll rules in the public sector and reduces the administrative costs and burden to business.

1. Results from survey conducted in July 2018

• 69% of members surveyed said they made ‘blanket in or out of scope decisions’ as the most common way their public sectors clients have made IR35 status decisions, with 31% making decisions on a case by case basis

July 2018 member survey, sample 132

• 42% of members surveyed said that they had observed an increase in the number of non-compliant umbrella/intermediary models since the introduction of the public sector IR35 reform in April 2017

July 2018 member survey, sample 120

• 74% of member surveyed said there would be reduced flexibility of the labour market by early implementation of IR35 in the private sector (April 2019) 

68% of members surveyed said that early implementation of IR35 in the private sector (April 2019) would exacerbate skills shortages

72% of members surveyed said that early implementation of IR35 in the private sector (April 2019) lead to increase in tax avoidance schemes and non-compliant intermediary models

July 2018 member survey, sample 149

2. Jobs transform lives, which is why we are building the best recruitment industry in the world. As the professional body for recruitment we’re determined to make businesses more successful by helping them secure the people they need. We are absolutely passionate and totally committed in this pursuit for recruiters, employers, and the people they hire. Find out more about the Recruitment & Employment Confederation at www.rec.uk.com.