Criticisms continue to pour regarding the Government’s decision to go ahead with the private sector IR35 extension.
The new rules require all medium and large size private sector UK businesses to assess the employment status of contracting professionals. According to a report by Director of Finance magazine, the reform will result in about 10 percent increase in accountancy costs for these businesses.
While small businesses seem to be exempt from IR35 reform rules, the Government has not clarified how they will be defined. There is no concrete legal definition differentiating different business sizes in the UK.
Experts have warned that the implementation of the IR35 rules will lead to an increase in tax avoidance schemes. Julia Kermode, the CEO of the Freelancer and Contractor Services Association (FCSA) had stated that there could be an exponential increase in such schemes once the tax rules are implemented. This has been inferred from similar activities in the public sector after the implementation of the IR35 reform in April 2017.
Costly for Businesses and Contracting Professionals
The CEO of Contractor Calculator, Dave Chaplin, had stated that the damage due to public sector IR35 reform is still not clear. Once the real impact of the reform come to light, he anticipates that the unintended consequences on the sector in the form of losses and lost projects will become clear.
The tax reform rules have not been properly conceived, according to Mr. Chaplin. The reform will ultimately damage the UK economy.
According to Mr. Chaplin, the tax reform will increase the cost of hiring flexible workers by 10 percent. The move is contrary to the pro-business claims of the Government. The extension of the tax reform will create difficulties for private businesses that can’t afford full-time workers.
This view is shared by Lee Murphy, founder of online accountancy firm, Pandle. He had opined that the tax reforms will hit contracting professionals and also result in increased business costs.
The Chairman of the Federation of Small Business (FSB), Mike Cherry has urged the government to carefully manage the destructive reform in the private sector.
Meanwhile, a positive aspect of the tax reform is that contractors associated with umbrella companies will receive statutory employment benefits enjoyed by salaried counterparts. They will be in a better position as compared to contracting professionals who offer services independently or through a personal service agency (PSA).