The Government is to look into extending off-payroll tax rules to contractors in the private sector.
The IR35 rules were introduced in 2000 to stop individuals avoiding tax by working through their own company. The rules affect contractors such as IT consultants, management consultants and project managers.
In April 2017, the Government reformed off-payroll working in the public sector and introduced an online IR35 tool to help employers determine the tax status of contractors. The change has brought in an extra £410 million in tax revenue but there has been widespread criticism of the new system by organisations representing the self-employed.
Now a new consultation is looking at the option of extending those reforms to the private sector. According to the Government, IR35 rules are not applied correctly in 90% of cases within the private sector.
Mel Stride, financial secretary to the Treasury, said: "It's very important that we recognise the hard work of contractors across all sectors … but it's also right that we have a fair tax system that balances efficiency and simplicity for taxpayers, while also supporting our vital public services."
Freelance body IPSE has described the move as "anti-business" and says it would be a "fatal blow to the economy". Chris Bryce, IPSE ceo, said: "For the Government to even consider introducing the ill-judged changes to IR35 in the public sector to the private sector before their full impact can be truly analysed is outrageous."
Mike Cherry, national chairman of the Federation of Small Businesses (FSB), has warned the Government not to "unfairly single out the self-employed once again".
Cherry said: "The self-employed community is now 4.75 million-strong. The Government needs to think very carefully about any changes that could stifle the vital contribution it's making to our economy."
Dave Chaplin, ceo and founder of ContractorCalculator, said: "HMRC does not understand IR35, does not understand employment status case law, and is not capable of effectively enforcing the legislation. How can HMRC be expected or trusted to educate the private sector to assess the employment status of workers when they cannot even get it right themselves? If this goes ahead it will be a complete car crash."
Julia Kermode, chief executive of The Freelancer and Contractor Services Association (FCSA), said: "The reforms in the public sector have had a devastating impact … HMRC has failed to communicate effectively with 50,000 public sector bodies so to roll the reforms out to 5.5m private businesses in the UK will require a massive upscaling of current policy implementation which HMRC is simply not equipped to do."
HMRC's online tool to determine IR35 status has been widely criticised and last week an IT contractor successfully argued in court that HMRC had incorrectly determined that he was caught by IR35. IPSE's Chris Bryce said: "IR35 is so complex, not even HMRC can accurately determine who it applies to."