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With unemployment rising, IR35 simply pours fuel on the flames

With unemployment rising, IR35 simply pours fuel on the flames

Posted on 1st March 2021

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In case you have been living in a cave for the last few years, you’ll know that IR35 will start to apply to the private sector from April this year.  The government/HMRC are insistent that it goes ahead, citing numerous examples of egregious tax avoidance on the part of contractors.  Leaving on one side the unfortunate, not to say embarrassing, recent episode in which HMRC allegedly employed some who were using disguised remuneration, the authorities’ argument, which will doubtless resonate with many, if not most, of those on company pay-rolls, is that the self-employed need to pay tax fairly and not avoid doing so via disguised remuneration, umbrella companies etc.  On the other side of the fence are the various media and interest groups that represent the self-employed. The latter’s arguments have had no impact, with the government modelling its response on Psalmist’s deaf adder. Add in that the Chancellor will almost certainly increase the tax burden on the self-employed in the near/mid future and anyone contemplating becoming working for him/herself will almost certainly be having second thoughts right now. In fact, as the ONS shows (see graph here, from the Sunday Telegraph), the rise in self-employment has gone into sharp reverse.

ONS self-employment

Then, to make matters worse, there are numerous reports of companies enacting blanket bans on contractors, insisting that they change to work on a full PAYE basis or via an umbrella company chosen by the employer.  This requirement to work on-payroll is also being extended to third-party suppliers in many instances.

All of which begs the question of what the government thinks the impact of this will be on an economy that desperately needs every single cog to be turning as quickly as possible as the (stunningly impressive) vaccination programme allows us to escape the suffocating restrictions of lockdown. Yes, we now have a route map out of here, but without too much detail (especially in Scotland), as well as caveats at every juncture that we must “follow the science” and be reined back in if necessary. Does anyone actually think that the economy could survive another full-scale lockdown…?

Given that almost every one of those imposing the rules is on a more-than-decent public sector pay and pension scheme and has little chance of losing their job in the next few months, it must be asked how much they really understand the real world in which most contractors work. And by real world, I don’t just mean the top-earning contractors in IT and consultancy, but the majority of “ordinary” self-employed; those who earning a modest yet satisfactory living but who now are struggling due to the almost total lack of support from government to limited company directors. 

The private sector is about to experience a rapid increase in redundancies in the next few months as the furlough and other business support schemes are wound down.  Even a few months’ more grace will only delay this to some extent.  Currently economists reckon that real unemployment is around 2 million, not the 1.75 million that the ONS stats indicate, with the most recent ONS figures confirming the upwards trajectory. All surveys suggest that those most affected are the young, although it’s also important to note that the oldest members of the workforce are also losing their jobs, often with little chance/time to retrain or do something that will keep them gainfully employed. 

Perhaps I’m missing something here, but at a time when unemployment is rising and the self-employed are being shown the door, in many instances with the instruction not to return unless they want to change to on-payroll status, surely we should be doing everything to encourage entrepreneurs to start up the companies that might become the next Skyscanner or Brewdog? Of course, the vast majority won’t hit those heights, but that doesn’t mean that they won’t be running decent, responsible – and tax paying – businesses. Rather than pushing ahead with IR35, why is the government closing this particular stable door after having shooed out all the horses?

Alastair Blair, thePotentMix 

Posted in Guest blog

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