Thursday 11 July 2019 4:45 pm

IR35: 'Damaging' tax changes set to hit self-employed workers

Self-employed workers face paying controversial new taxes from next year as part of a measure that is set to rake in more than £3bn for the taxman.

New ‘off-payroll’ rules to tax sole traders as employees if their working arrangement are deemed to be akin to regular staff will likely hit roughly 170,000 private sector workers from April 2020.

Read more: Let’s reform our ugly company tax system

The measure, known as IR35, has sparked anger among lobby groups such as The Federation of Small Businesses and Self-Employed (FSB), which warns that the proposals risk “significant disruption to a quarter of a million sole traders”.

“Left unamended, this bill could easily usher in an environment where firms in need of expertise in the short term steer clear of the self-employed community because they’re afraid of making an incorrect assessment, which would be damaging for all concerned,” warned Mike Cherry, FSB national chairman.

Paul Falvey, tax partner at accountancy and business advisory firm BDO, added: “The greatest burden will fall on larger businesses which will pick up responsibility for administering the system. With all the political changes ahead you have to wonder if this is the right time to put more burdens on businesses.”

The bill, put forward in last year’s autumn statement, aims to extend rules to the private sector to close loopholes which allow people working through personal service companies to avoid paying tax contributions.

In recent months calls have been mounting for a further delay to the bill to give private sector employees more time to get ready for the changes.

The government, which set forward its working rules changes in the Finance Bill draft legislation for 2019-20 which it published today, is forecasting that the additional tax this will collect is £3.1bn over four years from 2020/21 – 2023/24.

Read more: Inheritance tax faces a shake-up

Nigel Morris, employment tax director at MHA MacIntyre Hudson, warned that while the government has provided some clarity for concerned workers and companies, |there’s still can-kicking going on”.

He said: “The draft finance bill gives some welcome clarity on the definition of “small” for an unincorporated body, namely the turnover limit defined in the Companies Act, currently £10.2m per annum, as well as specifying that all businesses are “small” in their first year.

“However, this seems inequitable for incorporated businesses who are only classified as small if they meet two of the three criteria relating to Turnover, Assets and Employees. An incorporated business could be caught by the new rules if they have 51 employees, where an unincorporated business wouldn’t, even if it had 100 employees.”