During yesterday’s autumn statement, UK Chancellor Phillip Hammond announced a number of reforms including changes to IR35 in the public sector, employee remuneration and a number of other measures. The changes are set to affect the temporary work sector and self-employment sectors.

The Chancellor did not mention IR35 by name during the speech. According to the Autumn Statement:

“The government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company. The government believes public sector bodies have a duty to ensure that those who work for them pay the right amount of tax.”

The Autumn Statement continues “the reform will help to tackle the high levels of non-compliance with the current rules and means that those working in a similar way to employees in the public sector will pay the same taxes as employees. In response to feedback during the consultation, the 5% tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply.”

Furthermore, the statement said that employers can choose to remunerate their employees in a range of different ways in addition to a cash salary. The government also announced plans for the taxation of different forms of remuneration.

The government also announced that it plans to extend the scope of measures designed to tackle the use of disguised remuneration avoidance schemes by the self-employed. Further to this, the government will take steps to make it less attractive for employers to use disguised remuneration avoidance schemes, by denying tax relief for an employer’s contributions to disguised remuneration schemes unless tax and National Insurance are paid within a specified period. The government will introduce a new penalty for any person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. The government is investing further in HMRC to increase its activity on countering avoidance and taking cases forward for litigation. The government is investing further in HMRC to increase its activity on countering avoidance and taking cases forward for litigation.

Fiona Coombe, Director, Legal & Regulatory Research at Staffing Industry Analysts, commented:

“Overall these measures tackle tax avoidance and unfair practices so appear to be a good thing. But the disguised remuneration proposal of denying tax relief unless tax is paid within a set time sounds overly complex and as with all of the proposals the devil is in the detail.”

Responding to the Chancellor's Autumn Statement Julia Kermode, chief executive of the Freelancer & Contractor Services Association also commented:

"FCSA welcomes any measures that tackle disguised remuneration schemes.  Such schemes have become more prevalent, some with particularly complex offshore structures, which entice contractors and self-employed by the high returns offered. It has become increasingly difficult for legitimate businesses to compete with these schemes, so we fully support the Chancellor's move to tackle them.”

"However, we are outraged that the 5% tax-free allowance for business expenses will be removed from off-payroll workers in the public sector. The new complexities around IR35 status means that professional contractors and interims will be forced into making deemed payments throughout the year, which in turn means that they will need more accountancy support going forwards to reconcile their financial affairs, and therefore more justification for the 5% allowance.  Once again the hardworking freelancers and contractors who are propping up the UK economy are being penalised.”

Dave Chaplin, CEO and founder of Contractor Calculator, also commented:

"Clearly, the IR35 reforms in the public sector are going ahead despite many experts saying that HMRC and the market are not ready with some speculating that the same reforms will be rolled out into the private sector in due course.  Recruiters placing contractors into roles of 6 months or more in the public sector now should be taking note of this with immediate effect.”

"The impact could see people putting up their rates and clients could be lost so it is in the interest of recruiters to ensure that the contractors are outside IR35 - recruiters need to be working with the public sector, hirers and make them aware of the risks ahead,” Chaplin said.

"The Chancellor also mentioned a review of incorporation and different ways of working and different tax regimes and we already have the Taylor review underway which is looking at today's ways of working.” 

‘What is telling is that Hammond used the phrase "different levels of tax for people doing the same jobs" and this type of language infers that freelancers and contractors should not, in his opinion, be getting any tax advantages despite the fact that they are taking the risk of being self-employed and do not seek any benefits that come with choosing to work in this way.” 

“The current tax system is not fitting with today's way of working. We need a complete overhaul but whatever measures are introduced in due course, Hammond needs to ensure he doesn't provide HMRC with a weapon to extract more tax from the genuinely self-employed. The freelance workforce plays a vital role in the UK economy none more so than in the coming months and years as we face a period of uncertainty as we prepare to leave the EU.  The Chancellor needs to recognise these workers and not penalise them."

The Association of Professional Staffing Companies (APSCo) was unhappy with the Autumn Statement saying that the UK will now have one of the most inflexible labour markets in the world. Samantha Hurley, Operations Director at APSCo said:

“The government has announced that it is to introduce IR35 tax changes, which will result in Personal Service Company contractors in the public sector losing their right to determine their tax status.  We are furious that the government has ignored all industry stakeholders and has overridden the concerns of its own departments. This change will give recruitment firms and other engagers, who pay the contractor, liability and responsibility for operating payroll and paying the correct taxes to HMRC. These changes will convert the UK from having one of the most flexible labour markets in the world to having one of the most inflexible labour markets in the world.”

“Despite the government framing this as a duty on the Public Sector to ensure that those who work for them pay the correct tax, the reality is that the vast number of contractors work via recruitment firms and other engagers.  In fact, it is these unconnected third parties that will bear the responsibility and legal liability for making the correct decision on tax status - namely whether the contractor is working in a similar way to an employee, and therefore liable for paying same taxes as an employee, which is an over-simplification of IR35. This is a disappointing and illogical move. The public sector will inevitably see its costs rise at a time when budgets are already very tight,” Hurley said.

“The Chancellor has just promised large scale investment in infrastructure and science and digital innovation to the tune of £23 billion over the next five years.  However we would question how the public sector will deliver on this promise when HMRC has just destabilised the flexible labour market in the UK, which Government Departments and local and regional government rely on.”

“While HMRC has developed an online tool which it says will determine an individual’s tax status, we believe that the public sector, the accountancy profession and the recruitment sector are sceptical as to whether this tool can deliver certainty. Consequently most placements will be treated as within IR35 in order to mitigate risk- this is likely to result in multiple appeals and employment claims against the public sector.”