Freelance sole traders ‘wrongly preparing for IR35 reform from April’

Nearly as many as one in five freelancers who operate as sole traders are needlessly preparing for reform of IR35 in the private sector, scheduled to come into force from April 2021.

The preparations by 18% of such unincorporated self-employed people are needless because the reforms “do not apply to them”, points out the FCSA, which co-produced the finding.

The IR35 changes will apply to limited company freelancers, however, “penalising” them and the firms they work with, warns FreeAgent, which with the FCSA polled 500 freelancers.

'There is the clue'

Status advisory Bauer & Cottrell confirmed to FreelanceUK yesterday: “Sole traders are outside the IR35 legislation – also known as the ‘Intermediaries legislation.’

“And there is the clue – no intermediary.But limited companies, personal service companies and partnerships are affected by IR35 and its reform, effective from 11 months’ time,” the advisory said.

Under the HMRC reform, workers in such entities will lose the ability to decide their IR35 status, which their client will decide instead -- as the public sector has done since April 2017.

'Confused the audience'

But as to why parts of the private sector self-employed workforce who are not affected, believe that they are affected, a former tax inspector says the industry may be partly to blame.

“There’s lots of IR35 ‘experts’ going around giving seminars, and a speaker at one of these pay-to-attend events totally confused the audience about sole traders,” says Kate Cottrell.

"It's probably not coincidental that I've since been asked to clarify whether sole traders are caught or not -- by IR35 generally, and the reforms to it in the private sector from this coming April. To reiterate, sole traders aren't within the scope of either."

'Very serious error'

But the government is to blame too because it included sole traders in its estimate of ‘58,000 average monthly worker instances’ captured by the public sector reforms, says the FCSA.

“Sole traders are outside the scope of IR35 legislation and therefore should not have been affected by the public sector reform, so the…inclusion [by HMRC/ HM Treasury] is a very serious error,” the Freelancer & Contractor Services Association (FCSA) said.

“The proposed changes are not intended to impact the…type of businesses [sole traders have],” emphasises FCSA’s chief executive Julia Kermode.

“The fact that our research points to 18% of sole-traders who are making plans for the 2020 rollout…speaks volumes about the lack of clarity regarding the reforms.”

Elsewhere in the research, out of those freelancers who will be affected by the April reforms to IR35, more than one in 10 say they intend to quit their way of working for good.

'Crippling'

And seven in 10 say the proposals are unfair on independent workers, in line with the almost eight in 10 who say being decided ‘inside IR35’ (and forced to pay PAYE as an employee) should result in employee rights.

“Time and again policymakers continue to ignore the fact that the self-employed have none of the employment rights or the security that comes with permanent employment”, said FreeAgent CEO Ed Molyneux.

“There must be some recognition for that [from the government]. Currently [though], they are intent on crippling what is a very important and growing part of the UK economy.”