Private sector businesses should start preparing for the IR35 tax reform. Specialist tax consultancy firm Qdos Contractor has advised private firms to learn from the past. They should prepare now to avoid the chaos similar to the one inflicted on the public sector by taxation rules.
The IR35 reform had raised a lot of criticisms when introduced last year in April. Experts argue that the tax reform has failed to increase tax compliance. In addition, it has also resulted in disruption in temporary hiring.
Despite assurances from the Treasury, the government will likely extend IR35 rules to the private sector. This could affect nearly 5 million independent contractors who work for the private sector.
In an online survey carried out by ContractorCalculator, most experts had opined that the reform will have unintended results. Experts had warned about the adverse effects of the IRS reform before it was even released in the public sector. Notable industries that have heavily criticized the IR35 reform include the following.
- PRISM – an umbrella company trade organization
- Freelancer and Contractor Services Association (FCSA)
- Association of Independent Professionals and the Self Employed (IPSE)
- Association of Recruitment Consultancies (ARC)
- Association of Professional Staffing Companies (APSCo)
- Recruitment and Employment Confederation (REC)
The same agencies that have opposed the reform in the public sector are again raising their voices. They are opposing the rules based on the potentially devastating impact on the economy. However, many fear that the voices will not be heard.
But their criticisms and advise had fallen on deaf ears. The government has intentionally disregarded and shut eyes to the warnings. It has decided to press ahead with the reform in the private sector, which will be implemented through the HM Revenues (HMRC) and the Treasury.
The government has appeared to be impervious to evidence that suggests a lot of disruption could be caused by the implementation of the reform in the private sector. In case of changes in the private sector, tax rules are implemented, it could result in a lot of inaccurate determination of independent contractors as regular employees. Also, it will place a burden on employers who will have an additional responsibility to determine the status of the contractors.
In case the chaos caused by the reform in the public sector mirrors in the private sector, it could lead to a great shortage of skilled employees in the sector. Contractors will be forced to look for work elsewhere even outside the country.
Contractors are urged to write to the MPs raising their voices against the IR35. The private sector reforms that appear highly likely cause financial hardships for contractors. That’s why it’s important to prepare for the reform now to avoid any problems later on.