Changes to IR35 rules threaten sole traders, warns FSB

FSB
Mike Cherry of the FSB

Government changes to the rules governing the IR35 rules – known as ‘off payroll’ – could damage the employability of a quarter of a million sole traders, the FSB has warned.

These are the rules which have been given a high profile over the way the BBC works with some ‘contractors’. A draft Finance Bill could shift to the employer the responsibility for determining whether a worker is self-employed for tax purposes.

And that could put employers off hiring sole traders, says FSB National Chairman Mike Cherry. “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.”

IR35 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.

The 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.