Call to axe IR35 and T&S reforms amid Brexit

Proposed and recently introduced tax rules in the contractor sector should be axed or amended in light of Friday’s EU referendum result, experts are warning.

Chris Bryce, chief executive of IPSE, says negotiating a withdrawal from the EU is not the time for Britain to change how its public sector operates IR35, as it plans to do from April.  

“[Because] we are renegotiating our exit,” Mr Bryce said, “the government’s proposed changes to IR35 should now be dropped completely.”

He says cutting red tape on contractors so that the UK can have “the most flexible” economy is vital since the vote for a Brexit, which Pantheon Economics predicts will cause a recession.

‘Relief for all’

Adrian Marlowe, chairman of staffing group the ARC, agrees that unshackling contractors from regulations – notably those that hit their expenses in April – should now be a priority.

“[In wake of the ‘Leave’ outcome, the government should now] permit tax relief for all agency workers on home-to-work travel subject to suitable limitations,” he said.

“This means the same tax rule for all those who find supply work through agencies regardless of status, e.g. limited company, self-employed or otherwise.”

Implementing the move, which would likely require April 6th’s T&S legislation to be amended, would “provide massive simplification and support employment,” Marlowe said.

“The argument against the tax relief concept voiced to us by HMRC was that it would not be possible to implement because of the EU State Aid rule,” he said. “[But this argument] falls away, now [that] we are to break from the EU.”  

‘Care should be taken’

The ARC chair, who is the boss of recruitment law firm Lawspeed, also called for caution ahead of any revisions to EU directives, which pro-Leave firms will be keen to see made.

“[EU] regulations in place [in the UK] can be changed, but whether or not they should be changed is an entirely different question,” Marlowe said. “Care should be taken before calling for the abandonment of directive-driven rules such as the Agency Workers Regulations.”

One legislative change that the legal expert says should be made since Britain is quitting the EU pertains to the public and non-profit sectors, where he says the VAT ‘staff hire concession’ should be reinstated.

‘Prolonged period of readjustment’

Kevin Green, chief executive of the REC, understands why the recruitment sector is eagerly submitting its suggestions for the UK to have a smooth transition to independence from Europe.

“There will be a prolonged period of renegotiation and readjustment,” Mr Green said after Friday’s ‘Leave’ result. “During this time government needs to do everything possible to help businesses to grow and create jobs.

“That involves outlining a timetable of renegotiation to help organisations make informed strategic decisions. We call on policy-makers to set out the plan for implementing changes to employment regulations such as the Agency Workers Directive”. 

But such a timetable shouldn’t be hastily compiled, according to most company directors. Rather, “getting a good deal” should be prioritised over wrapping it up speedily, say 51% of company bosses polled by the Institute of Directors.  

“A majority of business leaders think the vote for Brexit is bad…[so their] plans for investment and hiring are being put on hold or scaled back,” the institute said. “[But] firms are willing to be patient… [they think] cool [negotiating] heads will be needed.”

‘Short term volatility’

A similarly downbeat investment forecast was sounded over the weekend by Mike Rake, chairman of BT and a vocal Remain campaigner in the run-up to the referendum.

“Businesses will hold back on investment in the short term volatility,” he said. “If this period of volatility goes on for longer and we don’t get some stabilisation then we will see people cut costs.”

Ed Molyneux, of e-accounting platform FreeAgent, says the best thing the government can do to avoid such cuts is to keep firms ‘in the loop’ about how its talks with the EU progress, on issues such as tax and trade.

“Be as swift as possible in providing updates...and give every business owner in the UK clear, up-to-date information,” Molyneux said, appealing to the government. “The last thing the business sector needs is to be kept in the dark.” 

‘Considerations and challenges’

Armed with this information (once it emerges), all enterprise owners are being urged to run a review of how their venture will fare as a business located in, and trading out of a non-EU member state.

“Every business has its own set of considerations and challenges to look at,” the British Chambers of Commerce reportedly advised at the weekend, in line with comments from the IoD’s Simon Walker.

“Businesses will be busy working out how they are going to adapt and succeed after the referendum result,” Mr Walker said. “But we can’t sugar-coat this…[and] there is no point crying over spilled milk.”

The IoD director-general was speaking after the first weekend since the referendum result during which it emerged that:

  • A third of IoD member firms said hiring will continue at the same pace, but 24% said they will freeze recruitment entirely. Worse still, 5% will make redundancies and about 20% will consider moving some of their operations outside the UK; only 1% say they will bring operations back.
  • A ‘Blue Card’ is what highly skilled UK workers will likely have to apply for to work in any of the EU member states, post-Brexit. This EU-wide-permit was mooted by Essex University Professor Steve Peers, a specialist in EU law, before the referendum, but is still regarded as the soundest alternative to UK workers qualifying as intra-company transferees.
  • Warnings were sounded about mergers and acquisitions. Typically, a shoo-in for some contract IT workers such as systems integrators, the M&A market will reportedly be “uncertain” for anywhere between the next three months and the next two years, says Cass Business School Professor Scot Moller. Accounting firm Gerald Edelman reportedly agrees, foreseeing “lower volumes” of corporate deals in the coming months.
  • NatWest and RBS stopped selling Euros and Thomas Cook suspended its Click & Collect currency service. Fears about unfavourable exchange rates have also been expressed as potential problem for eBay traders, whose operations often rely on buying cheap goods from China.
  • Unnamed investment bankers told the Daily Mail, a pro-Brexit newspaper, that major banks are considering plans to move “thousands” of jobs to Frankfurt and Berlin.
  • The Bank of England moved to reassure investors, saying it would “not hesitate to take additional measures as required as markets adjust.”
  • Ratings agency Moody’s downgraded the UK from “stable” to “negative” owing to an incoming and “prolonged period of uncertainty.”
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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