Proposed IR35 changes slammed by employers

Proposed IR35 changes slammed by employers

13 July 2016

Businesses have slammed some proposed changes to the Intermediaries Legislation that would mean that businesses were responsible for determining when the IR35 laws applied, instead of a contractors Public Service Company (PSC).

Businesses that use a lot of temporary staff, raised concerns that the new rules could be costly, burdensome and constraining. These businesses also stressed that it could affect their relationship with temporary workers.

To try and understand the consequences of any shift in the rules, HMRC commissioned an impact study focussed on some changes to the Intermediaries Legislation. The primary aim of the study was to understand the likely implications for employers if the rules were to change in future. 

In July 2015, HMRC published a document that it hoped would tackle perceived widespread non-compliance with Intermediaries Legislation. One of the most important options discussed in the document proposes that employers should be responsible for determining whether IR35 rules apply, rather than the PSC.

They thought that such a change would undermine their businesses and the relationship they have with self-employed workers.

Businesses love flexible workers

One of the things the government wanted to learn was how important temporary workers, particularly those employed by PSCs, are to businesses of different types.

And an overwhelming response from these organisations, was that they value the flexibility that comes along with employing temporary workers. “As an employer you don’t always want to take someone on as a member of staff,” was what one recruitment agency told the report writers.

Some businesses were found to rely on flexible workers more than others. Organisations operating in sectors like construction, IT and consultancy, where ‘project-type’ contract work is commonplace used flexible workers more than others.

Response from businesses

The survey found that most businesses knew a great deal about the proposed changes, but there were some others that didn’t know anything about them.

Responses to the potential shift in responsibility for determining whether IR35 applies were universally resisted by organisations. They raised concerns about how the changes would affect employers and employees.

Employers raised concerns about additional administration, costs and confusion.

Concerns were also raised about the impact the change would have on employees, and their relationship with employers. These concerns can broadly be split into two.

  • First, employers were worried that the new arrangements could see a lot of PSC workers being forced into the role of direct employee. This would reduce flexibility for a lot of employers and could lead to the talent pool of temporary workers shrinking.
  • Second, employers raised a number of concerns about privacy. They were worried that temporary employees wouldn’t want to disclose information about their tax or employment history – particularly if they also work with competing organisations.

Another point of concern for employers was that the Supervision, Direction and Control (SDC) test which is supposed to determine an employee’s IR35 status. Businesses reported that the SDC test in its current form was open to interpretation. One large business said: “[Current tests are] quite woolly, some certainty would be helpful.”

A common view among organisations was that they would ‘err on the side of caution’ in order to ensure compliance, which could lead to genuine independent contractors struck by IR35 restrictions unnecessarily. Operations Director, Neil Armitage, said: “This report should be a stern warning to government. The proposed changes have the potential to wreak havoc on the flexible labour market and the sectors that they serve.

“It’s clear that businesses value the extra flexibility and skills that come along with employing temporary workers. Implementing these new rules would make getting flexible workers more difficult and would sap dynamism out of the economy when British businesses need dynamism the most.” 

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