FCSA chief exec warns IR35 changes will "unfairly penalise" businesses

Monday 15 January 2018

The IR35 reforms in the public sector have been very controversial across many parts of the self-employed landscape, as organisations such as the NHS find themselves dealing with the administrative costs of the changes. Contractors have found themselves being taxed differently, and in many cases being financially worse off as a result.

However, despite the rollout of the changes being unpopular in many circles, the government is talking about extending these reforms to the private sector in 2018. The chief executive of the Freelancer and Contractor Services Association (FCSA), Julia Kermode, has written in the Telegraph that this would "unfairly penalise businesses".

According to Ms Kermode, 5.5 million businesses would be affected by the IR35 changes, in addition to the 50,000 public sector organisations that have already had to deal with it. While many freelancers are already aware of the negative effects of IR35 on their own finances, a key argument against it is the harm that it could do to the private sector.

Ms Kermode pointed out that the "contingent workforce" of contractors - which makes up as much of 23 per cent of the UK workforce - now costs the public sector more due to the increased administrative costs, without any corresponding increase in productivity.

The amounts that contractors are able to take home have been reduced due to the increased tax burden, which in turn has driven many away from the public sector. This has led to skills shortages, as talented freelancers choose to work in industries where IR35 will not apply.

The fear among many is that, faced with the IR35 changes, many people will rethink the decision to become self-employed. The flexibility that a freelance workforce brings is crucial to the UK economy.

Critics of IR35 have pointed out that it shouldn't be needed. Ms Kermode said: "In essence, HM Revenue and Customs will be delegating its enforcement role to businesses, which is not only fundamentally wrong but also unnecessary if HMRC properly implements its existing powers."

Freelancers working largely in the private sector might be worried about these developments. Should IR35 be extended, it would not lead to changes for everyone who is self-employed but many would see their tax status changing. If you're wondering "how does IR35 affect me?" then there is advice out there.

Brookson are specialist accountants when it comes to helping out the self-employed, and we have plenty of resources you can use. If you're worried about IR35 you can download one of our guides, or book a consultation with us.

By Victoria McDonnell

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