The self-employed are, put simply, one of the UK’s most productive and dynamic sectors. And it’s on the rise, with almost 5 million self-employed in the UK contributing £271B to the UK economy last year. We believe that Chancellor Hammond has a real opportunity to encourage further growth of the sector and overall economy with the Autumn 2018 budget, despite speculation that he will make life more difficult for them with further IR35 reform.
The existing off-payroll working rules (IR35) for the public sector were tightened in April 2017 when responsibility for deciding whether the rules apply and for deducting the appropriate taxes passed from the individual contractor to public authorities.
But research published last year found that the public sector is losing top talent due to the reforms, with 71% of public sector projects being cancelled or delayed as a result of talent leaving. One of the big losers has been the NHS, which has seen 25% of its departments lose half of their flexible staff.
The proposed reforms rumoured to be part of today’s budget would require private sector engagers, including leading platforms, to take responsibility to make sure that the self-employed they work with adhere to IR35.
Whilst well-intentioned to target people who falsely claim to be self-employed, these rules risk punishing the UK’s growing workforce of micro and solo-entrepreneurs. It means that if HMRC believes a self-employed person really isn’t, it can tax them like an employee – but without any of the benefits of being an employee, like job security, pension contributions, holiday pay, sick pay or employee protection.
The system is so complex and ineffective that it catches out many legitimately self-employed people (employment status is notoriously complex in the UK as it is). Rolling out the rules to the private sector, when it’s shown to negatively impact the public sector, is premature. It risks making it too complicated and punitive for people to take the leap into becoming self-employed and benefit from the flexibility that it offers many
We hope that, with the economic uncertainty surrounding Brexit, the Chancellor would demonstrate support for the UK’s self-employed by simply putting a further extension of IR35 on hold. In the meantime, a thoughtful strategy needs to be developed that creates a safety net for this new way of working; that understands the needs of the self-employed in the information age and supports its growth – not a tactic that may very well hinder it.