Friday 10 July 2020 5:24 am

The quiet crisis: IR35 and the UK’s forgotten freelancers

Andy Chamberlain is director of policy at the Association of Independent Professionals and the Self Employed (IPSE)

In a crisis which has shaken so many aspects of our lives, it can be hard to get some issues heard above the noise. News that would once have made headlines seems to slip almost unnoticed under the radar. 

One such development was the quiet confirmation that changes to IR35 self-employed taxes will come into force in April next year. 

It is not an exaggeration to say that this could not come at a worse time for freelancers, the businesses they work for, and the economy as a whole.

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IR35 is a regulation to clamp down on what the government believes to be false self-employment. Essentially, if HMRC thinks someone is falsely self-employed, it can tax them at the higher rate of an employee — but without any of the rights. 

You might say “fair enough if they’re dodging tax”. The problem, however, is that IR35 is extremely — mind-bogglingly — complex. It is so complex, in fact, that of the IR35 judgements that have been tested in court, HMRC has actually got most of them wrong. IR35 catches out many hard-working freelancers who are simply trying to make a living.

That’s IR35 as it stands: a time-consuming and concerning threat hanging over freelancers. But it gets worse. The government has been pushing for some time to change IR35 so that it is no longer the contractor themselves who has responsibility for their IR35 status, but their client. The plan was that this change would come into force in April this year. 

Essentially, this would mean that companies which wanted to use freelancers would have to navigate the nightmarishly complex IR35 system before engaging them. And it would be on them if they got it wrong: they risked not only fines, but enormous tax liabilities. 

Unsurprisingly, throughout 2019, companies across the UK announced that they would either only work with “inside IR35” contractors (essentially a kind of zero-rights worker), or that they were scrapping their contractor workforce altogether. As a result, IPSE research showed that a third of freelancers were planning to stop contracting in the UK. 

In the event, as coronavirus loomed, the government announced at the last minute that it would delay the legislation until next year. It was an unexpected reprieve for freelancers, and also a tacit acknowledgement that the government feared the changes would cause upheaval in the self-employed sector and the wider economy. 

Coronavirus, however, has brought its own set of unique challenges for the freelance community. When the lockdown kicked in and the economy froze, so did the supply of work for many of the self-employed.

At IPSE, we pushed hard for the government to set up an emergency fund for freelancers. What we got was the Self-Employment Income Support Scheme (SEISS). It gave a lot of what we asked for and was generous to some, but it left out too many others, particularly self-employed people who work through limited companies. 

Limited company directors, unfortunately, are exactly the group of freelancers affected by the IR35 changes. This group, often among the most highly skilled and productive freelancers, has had a drastic lack of support during Covid-19 and now faces a further hammering from the changes to IR35.

It is a perfect storm that could sink this vital part of the workforce. 

In past recessions, highly skilled freelancers have been essential to kickstarting the economy, providing vital flexible expertise to companies large and small. This time, going into the worst recession in 300 years, government policies are sinking one of our greatest economic assets. 

The government must urgently rethink and do more to back Britain’s freelancers. 

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Main image credit: Getty

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