REC warns IR35 legislation is deterring crucial workforce.

Publish and be clear.

The Recruitment & Employment Confederation (REC) is urging the government to commit to publishing the final legislation governing tax rules for contractors by October 2019. The organisation say this move would give businesses six months to prepare fully for the new rules.

New rules on how contractors working in the private sector pay tax (IR35) will come into force one year from now and current candidate shortages for permanent roles mean that the use of contractors already provides UK employers with a crucial outlet and a means of harnessing the right skills and expertise quickly. In times of uncertainty, access to highly skilled individuals to drive specific projects has become more important than ever. 

Unfortunately, as they stand, IR35 rules put some people off this way of working. The REC believes agencies (recruiters) should not bear responsibility for their client’s (the organisation/recipient of the work) decision on who falls into IR35 status and wants HMRC to support recruiters in determining who is eligible to pay IR35 tax.

In the light of the forthcoming changes, the REC surveyed its members too gauge readiness for the IR35 changes. They found:

 

·         Nine in ten respondents (91 per cent) said their clients have only some or no awareness of the changes coming into effect.

·         More than nine in ten respondents believe that making clients liable for their worker supply chains would improve, at least to some extent, accuracy on IR35 determination.

·         Almost a third (30 per cent) have no confidence in the ability of the government’s CEST tool which is used to make accurate IR35 determinations.

·         Seven in ten (69 per cent) respondents said that the requirement of all parties to pass along IR35 determinations is a concern.

 

“Contractors and interim managers play an essential role within our economy – especially in periods of transition and uncertainty,” said Recruitment & Employment Confederation director of policy and campaigns, Tom Hadley. “The planned changes to taxation which are due to come into effect a year from now could significantly impede labour market agility at a time when UK businesses need it most.

“I am pleased that the Chancellor responded promptly to a recent letter from the REC detailing our concerns about where liability lies within the recruitment supply chain when determining IR35 status, and about how the small company exemption would work in practice,” he added. “We also urge HMRC to improve the CEST tool for checking status to give employers and recruiters a fair chance of implementing the charges effectively, with a recent survey of members saying that a third had no confidence in the tool.

“Everyone should pay the right level of tax but what our members want is clarity and a level playing field. We will continue to work with the government to find solutions and ensure that we do not jeopardise the substantial benefits that contracting brings to the UK economy.”

 

Results from survey conducted by the REC with its members on Tuesday 2 April 2019

1.    How aware are your clients of the new IR35 reforms coming to force in April 2020?

(227 respondents)

Very aware 9 per cent

Some awareness 75 per cent

No awareness 16 per cent

 

1.    How transparent are the supply chains you work in?

(224 respondents)

Very transparent 39 per cent

Somewhat transparent 54 per cent

None at all 6 per cent

 

2.    Would making clients liable for their supply chains improve accuracy on IR35 determinations?

(240 respondents)

Yes 52 per cent

No 7 per cent

To some extent 41 per cent

 

3.    Would a legal requirement on all parties to pass on the clients determination help increase transparency in supply chains?

(221 respondents)

Yes 71 per cent

No 5 per cent

To some extent 24 per cent

 

4.    How confident are you in the ability of CEST to make accurate IR35 determination?

(232 respondents)

Very confident 4 per cent

Somewhat confident 66 per cent

None at all 30 per cent

 

5.    What aspect of the reforms are you most concerned with?

(227 respondents)

Small business exemption for the end client 8 per cent

Client led resolution process 22 per cent

Requirement of all parties to pass along IR35 determination 23 per cent

All the above 46 per cent

None 2 per cent

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