IR35: Over half of self-employed people don’t know what it is

Despite being the most affected by it, the IR35 tax legislation designed to combat tax avoidance is unknown to 57% of self-employed people in the UK, according to new research by FreeAgent.

The legislation has faced heavy criticism by tax experts and the business community as being poorly conceived, badly implemented by HMRC and causing unnecessary costs and hardships for genuine small businesses.

Ed Molyneux, CEO and co-founder of FreeAgent, the cloud accounting software company, said that it was “almost unbelievable” that the changes have not been well communicated to self-employed people.

“It is almost unbelievable that IR35, which has a massive impact on self-employed people, is unbeknown to many of them.  Despite this, I can’t help but feel the shock is dulled by the expectation provoked by notoriously poor government communication,” he said.

Molyneux went on to say a lack of understanding over IR35 was symptomatic of a wider problem of communication between small business and government.

“The revelation that less than half of self-employed people even know what IR35 is reveals a deeper problem – a vacuum of conveyance of important information between the government and small businesses,” he said. “The need for a more informed UK small business nation extends beyond IR35 and applies to other regulations which, at the end of the day, can make or break small businesses.”

The FreeAgent CEO also accused the government of creating a contradictory policy in IR35 as it discourages the flexible working that the Conservatives have sought to promote.

“IR35 puts businesses at risk of having to pay greater tax but losing the self-employed benefits and flexibility they had. The government seems to want to have it both ways – which is unfair – companies have been incentivised to promote flexible workforces and this legislation goes totally against it,” he said.

Indeed, tax experts have predicted that IR35 could reduce a worker’s net income by up to 25%, but the Chancellor of the Exchequer, Sajid Javid, has recently announced the Conservative’s plan to review IR35 as part of its manifesto.

One third want IR35 dropped

Meanwhile, the research also found 30% of self-employed people wanted to see IR35 legislation dropped in the private sector altogether, with only 13% happy to keep it.

Confirming that tax laws for small businesses are complex, when asked what they’d like to see on the new government’s agenda, 44.5% of respondents stated they would like to see the UK tax code simplified for small businesses and over half (56%) of self-employed workers in the UK want the new government to cut taxes for small business.

As for next steps, Molyneux called on the government to maintain a clear line of communication between themselves, small businesses and self-employed people to have as smooth a transition as possible.

“I would advise that when the government reviews the IR35 legislation in the coming weeks, it keeps small businesses and self-employed people at the heart of the decision – this is a delicate state and nonchalant decisions made without clear communication to those most affected is simply not acceptable.”