Employment groups have urged the new chancellor Rishi Sunak to suspend the IR35 new tax regulations for self-employed workers or risk damaging the economy.
According to industry bodies, the changes, which are due to come into effect in April, will lead to a third of self-employed contractors stopping freelancing over non-compliance fears.
Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self-Employed (IPSE), said that the new regulations would “have disastrous consequences for the wider economy”.
He added: “The changes to IR35 due in April are a clear and imminent danger not only to contractors, but also the businesses that engage them and the wider economy.
The controversial IR35 measures were implemented in order to prevent tax avoidance by “disguised employees”, those contractors with permanent positions at companies without paying the same tax or national insurance as standard employees.
Under the latest IR35 reforms, private sector employers will now be responsible for assessing whether or not contractors need to pay income tax and national insurance contributions.
The reforms have left contractors fearing the worst, as there are worries that the private sector will take a risk-adverse approach and unfairly place contractors under the regulations.
The Recruitment and Employment Confederation (REC) told the Telegraph that Sunak should work with businesses so as to not damage the freelance market.
The REC’s chief executive Neil Carberry said: “Lots and lots of companies, because they are unsure about how to abide these new IR35 rules, are sitting back and saying: ‘We are not taking contractors on’.”
Ed Molyneux of accouting software company Free Agent said it was “no surprise” that uncertainty was coming to a head:
“Expanding IR35 legislation into the private sector will have a dramatically negative effect on UK freelancers and contractors, essentially pushing them into quasi-employment but without any of the protections that they would receive if they were actual employees”.
In January the government announced that it would review the rollout of the plan after hearing businesses’ concerns.
Financial secretary to the Treasury Jesse Norman said: “We recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules.
“The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.”
The government said the review would be concluded by mid-February and said it would engage with individuals and businesses on their experiences of the implementations of the reforms.
According to HMRC estimates, bringing more workers under the regulations will pull in £3.1bn in additional tax revenue in the next four years.