Over half of self-employed UK workers don’t know what IR35 is
More than half (57%) of self-employed workers in the UK don’t know what IR35 is, new research from FreeAgent reveals
Its study, which surveyed 2,000 self-employed people, showed that the majority of people most affected by IR35 are unaware of the legislation, which is designed to combat tax avoidance by both workers and the firms hiring them.
The research also found that 30% would like to see IR35 dropped for the private sector and that just 12.9% want to keep the legislation.
Additionally, 44.5% said they would like to see the UK tax code simplified for small businesses, and 56% want the new government to cut small businesses’ taxes.
Ed Molyneux, CEO and co-founder of FreeAgent, said the lack of awareness of IR35 among self-employed people was a concern.
“There is a vacuum of conveyance of important information between the government and small businesses,” he said.
“The need for a more informed UK small business nation extends beyond IR35 and applies to other regulations which, at the end of the day, can make or break small businesses.”
The research comes as the UK’s major political parties have all promised to review IR35 tax reforms due to be rolled out to the private sector, as part of their pledges in the lead-up to the general election on Thursday (12 December).
Earlier this week, the Conservative party pledged to review IR35 if it wins the election. Speaking on Radio 4's Money Box show, chancellor Sajid Javid said the Tories would review the rules to “make sure that the proposed changes are right to take forward”.
This announcement came despite no formal pledge appearing in the party’s manifesto.
Labour, the Liberal Democrats, and the Scottish National Party (SNP) have made similar promises, with written pledges in the Lib Dem and SNP manifestos.
Changes to IR35 will come into effect for private sector firms in April 2020, with the responsibility for assessing contractors’ tax status shifting from the contractor to the company that hires them.
The move is an attempt to tackle situations where self-employed contractors are effectively employees but are not treated as such, lowering taxes for both sides.
This follows reforms to IR35 legislation for the public sector which came into place in April 2017.
The planned changes for the private sector have faced a backlash from freelancers and business groups, who claim companies have not had long enough to prepare and the policy will lead to increased disputes.
Ryan Barnett, economic policy adviser at IPSE, told HR magazine that IR35 would be a “disaster” for both private sector businesses and contractors.
“The changes to IR35 will be a disaster for freelancers and the many businesses that rely on them,” he said.
“[FreeAgent’s] research also confirms the government has done nowhere near enough to prepare businesses and freelancers for these changes. It is shocking that so many freelancers do not know about them.
“The same is true for businesses. And, as more of them are finding out about the changes, they are panicking. We are now seeing banks and other major businesses panic-scrapping their entire contractor workforce. Even before the changes take effect, they are causing chaos.”
Barnett called for an overhaul of the system. “IR35 is a symptom of an outdated tax system that was not built with freelancers in mind - only employees and employers. The result, as freelancers clearly recognise, is a complex mess,” he said.
“It’s time to stop tinkering around the edges and fully redraft our tax code so that it works for employees and the self-employed alike.”
Steven Cameron, pensions director at Aegon, said the legislation also has a negative effect on pensions.
Speaking to HR magazine, he said: “In general, the self-employed are not benefitting from being auto-enrolled into a workplace pension with an employer contribution, so could become second-class pension citizens.
“Any IR35-style reclassification of contractors should also consider granting them the same pension rights as employees.”
Molyneux said that any government review should keep small businesses and self-employed people at the heart of decision-making.
He added: “This is a delicate state and nonchalant decisions made without clear communication to those most affected is simply not acceptable.”