Stay informed with free updates
Simply sign up to the Gig economy myFT Digest — delivered directly to your inbox.
Controversial reforms to the tax rules affecting the hiring of freelance labour are driving an increase in individuals opting out of work, data has revealed, sparking calls for a review of the policy.
A survey of more than 1,300 contractors published on Friday found that one in 10 contractors gave recent changes to the off payroll working rules, known as IR35, as the reason they were not currently working.
Since April 2021, the decision about whether freelancers working in the private sector should be considered self-employed for tax purposes — known as “outside IR35” — or employed has moved from individuals to their hirers. Similar rules have been in force in the public sector since 2017. The switch puts the final responsibility for paying the right tax on the hirers.
The survey carried out by the Association of Independent Professionals and the Self-Employed (IPSE) in February found that 79 per cent of respondents were in work, with 21 per cent out of work.
Half of those not working said that this was due to the impact of IR35 reforms in the private sector. Other reasons given by those not working included “government policy towards the self-employed”, which was mentioned by 22 per cent of respondents and “not being incentivised to return to the labour market”, a factor raised by 18 per cent of contractors.
Overall, 55 per cent of contractors said they had rejected an offer of work in the past 12 months due to it being deemed “inside IR35” by the hirer. Meanwhile, 24 per cent of those surveyed said they planned to seek contracts overseas this year to escape the rules — which do not apply to foreign hirers.
Andy Chamberlain, policy director at IPSE, said: “Three years later, the off-payroll rules are still keeping thousands of highly skilled individuals out of work. It’s staggering that the chancellor is happy for this to continue at a time when economic inactivity is one of his biggest concerns.”
He called on the government to launch a review of the tax rules and said this should look at its impact on the hiring of contractors.
MPs on the public accounts committee also recently called for further assessment of the reforms, saying they were worried “that HMRC’s approach to tackling IR35 is deterring legitimate economic activity”.
The committee recommended that HMRC assess the impact of its approach to administering IR35 reforms on the use of contractors in different sectors.
In a report published in late February, MPs added: “We are concerned that a lack of confidence in how to apply the rules, together with HMRC’s tough approach when taxpayers make mistakes, is deterring companies from using contractors.”
Since the complex reforms to off-payroll workers were first proposed they have attracted controversy and led to unsuccessful attempts by business and freelancer lobby groups to stop the rule changes coming into effect.
Hiring businesses have moved between 150,000 and 200,000 workers from contractor status on to their own payroll since the IR35 reforms, according to HMRC data reported by the PAC.
A government spokesperson said: “These reforms are crucial to ensuring those who work like employees pay tax like employees and have already succeeded in raising an additional £1.8bn by improving compliance.
“There’s no evidence that they’ve had any significant impact on the overall demand and supply of labour, with those impacted making up less than 1 per cent of the total workforce.”
Read the full article here