IR35 Reform will “Unfairly Penalise Business”

IR35 reform

Julia Kermode, CEO of FCSA, the trade association for umbrella companies and contractor accountants, has warned of damaging effects if reform of IR35 is extended to the private sector.

Speaking to Business Reporter about IR35, Julia said, “It affects the flexibility of businesses to bring in the contingent workforce, enabling them to scale up or down according to demand, or being able to bring in specialist niche skills to develop new projects, or perhaps they might accept a contract for more business and need a workforce on a short-term basis to deliver that. IR35 regulations affect all those scenarios and essentially the long-term stability of businesses and how we operate within the economy.”

As FCSA Accredited Members, Orange Genie share Julia’s concerns. Recent reform in the public sector moves responsibility for IR35 decisions from the contractor, to the hiring business. This changes the hiring of contractors from a simple purchase, to something much more complex, and makes those hiring businesses much less flexible.

The possibility that this reform will be extended to include the private sector has caused widespread concern, not least because the public-sector roll-out has gone so badly.

We’ve seen:

  • An increase in the cost of hiring contractors, without an increase in productivity.
  • Contractors leaving the public sector, resulting in skills shortages and delays to important projects.
  • An increase in tax avoidance and evasion as contractors look for ways to shore up falling incomes.

The reasons for reform:

When asked to explain the reasons for the reform, Julia said, “It came about really because HMRC were unable to enforce the current IR35 legislation, and they believe that there is 90% non-compliance with current IR35 legislation, which actually goes against our experience.”

Pointing out that HMRC have been unable to evidence where their figure came from, Julia went on to quote FCSA research involving data provided by the Public Accounts Committee on a sample of 2500 contractors, which suggests a non-compliance rate of just 10%.

There is also widespread frustration, because calls for legislation to be enforced rather than reformed have been ignored.

There’s nothing wrong with the existing legislation, and HMRC in the last 17 years have not properly enforced it,” said Julia. “HMRC have the powers to enforce it but we’re not seeing them doing that, and I actually believe they’re delegating their enforcement role to businesses quite inappropriately, and targeting one small section of the working population.”

The potential impact on the private sector

The public-sector reform affects around 50,000 public sector bodies, and we’ve seen widespread negative effects, including a vast increase in non-compliance and important projects being put on hold. On this evidence, rolling out the reform to the private sector’s 5.5 million businesses looks reckless at best.

Julia agrees. “We’re talking to as many people as we can, trying to get the message out that we’re really concerned about the potential impact that it could have on the UK’s economy as a whole.”

When asked what can be done instead, Julia pointed out that 23% of the UK’s workforce is now in non-permanent work. “That’s a structural change to our workforce, and we need a structural change across employment law and tax laws, and a holistic view as to what can be done.” She goes on to say, “We’ve got to absolutely retain the flexibility of our workforce because it’s one of the things that makes the UK competitive in the global marketplace.” 

Orange Genie entirely agree that enforcement of existing legislation is preferable to potentially disruptive reform. It’s also clear that, where reform is necessary, it should take into account the importance of the Contingent Workforce, and maintain that all-important flexibility.

If you have questions about this issue, or if Orange Genie can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com.

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