REC advises caution in dealing with contractors

Budget Warning

The Recruitment & Employment Confederation (REC) Budget submission calls on the government to avoid rushing through changes to how contractors pay tax (IR35) in the private sector. Citing evidence from public sector changes, the leading voice for the recruitment industry says they could be counterproductive for the Treasury and damage the jobs market at a difficult time for business with Brexit on the horizon.

A new survey of REC members, forming part of their Budget submission, indicates:

  • 72 per cent of members surveyed said that early implementation of IR35 in the private sector would lead to an increase in tax avoidance schemes and non-compliant intermediary models
  • 42 per cent of members surveyed said that they had observed an increase in the number of non-compliant umbrella/intermediary models since the introduction of the public sector IR35 reform in April 2017
  • 74 per cent of members surveyed said that early implementation of IR35 in the private sector would cause reduced flexibility in the labour market to adapt to changing conditions

“Everyone should pay the correct amount of tax,” asserts Recruitment & Employment Confederation chief executive Neil Carberry. “But rushing through poorly designed reforms to contractor tax in 2019 could be a gift to the unscrupulous – encouraging those who use tax avoidance schemes not those workers and companies who do the right thing. With many of recruiters seeing a rise in avoidance in the public sector since changes made last year, the vast majority of recruiters are clear that the Government needs to pause for thought on IR35.

“The ongoing employment status review should be completed before any changes are made,” he added. “And with Brexit causing uncertainty for all UK business, the government can ill afford to introduce reforms which risk damaging the flexibility of the labour market at a time like this.”

Carberry says the REC wants the government to conduct a comprehensive impact assessment of the IR35 public sector reforms before progressing to the private sector. He believes previous problems with unregulated intermediary company models have worsened as a direct consequence of the reform in the public sector.

REC members support government efforts to tackle non-compliance with IR35 and ensure that everyone pays the right amount of tax. Recruiters have repeatedly identified a rise in non-compliant umbrella/intermediary models and tax avoidance caused by the rushed IR35 reform in the public sector. This non-compliance creates an uneven playing field for compliant recruiters, the private sector, temporary workers and contractors – and the taxpayer loses out.

The REC is also asking that HMRC speed up investigations and implement an appeals process for contractors who disagree with their IR35 determination, while promptly closing down any intermediaries who promote or use non-compliance schemes. Clients should also have liability for the decisions they make on the tax status of contractors.

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