Sole traders plea for tax change delay as Finance Bill published

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Mike Cherry

The Government has published a draft Finance Bill which threatens to cement changes, announced at the Spring Statement, to where responsibility lies for determining whether a worker is self-employed for tax purposes.

IR35 – also known as ‘off-payroll’ – rules allow HMRC to tax sole traders as employees if it deems their working arrangement to be akin to regular staff. In April 2017, responsibility for deciding whether IR35 should apply to self-employed workers shifted from contractor to employer in the public sector. From April 2020, the same change will take effect in the private sector if the bill published today passes unamended.

In its response to the Government’s proposals, FSB is urging policymakers to delay roll-out of the switch, warning that its introduction following a period of sustained political uncertainty and stuttering economic growth risks significant disruption to a quarter of a million sole traders.

The Small Business Index confidence measure was in negative territory for an unprecedented fourth straight quarter in the three months to June. Rolling three-month GDP growth slowed for a second consecutive month in May, according to the ONS.

The submission also flags issues with HMRC’s check employment status for tax (CEST) tool, used to determine whether or not IR35 should apply. HMRC’s own figures show that the CEST tool delivers an undetermined result in 15% of cases. It was out of sync with rulings in a number of recent high-profile court judgements.

FSB National Chairman Mike Cherry said: “Pressing ahead with IR35 changes in April with no regard for the other pressures facing businesses is a reckless move.

“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. A lot of smaller firms that rely on sole traders have no experience of navigating IR35.

“The Government will tell you that switching responsibility for off-payroll arrangements in the public sector has had a limited impact. It fails to acknowledge that the vast majority of businesses do not enjoy access to the beefed-up HR teams regularly found in public bodies.

“Even where firms do have dedicated HR personnel, their experience of taking responsibility for these arrangements is usually limited: large corporations have found the rules hard to navigate. And they’ll be reliant on a CEST tool which – by HMRC’s own admission – delivers an undetermined result in a big proportion of cases.

“The flexibility of our labour market is one of our economy’s greatest strengths, enabling a jobs miracle since the financial crash. By bringing in these changes prematurely, we risk undermining that strength at a time when it’s desperately needed. Unprecedented political uncertainty, increasing regulatory burdens and rising costs are already hurting business confidence. Disrupting our vital sole traders will make a bad situation worse.”