Boris Johnson faces a battle with tens of thousands of freelance workers as he prepares to push through huge tax changes that campaigners say would "decimate the flexible workforce".
Like the controversial loan charge policy, the overhaul is aimed at clamping down on tax avoidance but experts warn it is hitting the wrong people and being rushed through with little scrutiny.
Freelancers from across the UK gathered to protest the looming tax changes in Westminster on Wednesday, warning that many large firms have already announced they will no longer hire self-employed workers and some jobs are going overseas.
Liberal Democrat MP Tim Farron told BuzzFeed News the crackdown was "short-sighted", adding: "The Conservative party is just not getting how the modern world works: this is going to affect people’s ability to pay the rent, mortgage, feed their kids and develop their business."
It comes days after HM Revenue and Customs (HMRC) were accused of "gaslighting" contract workers who face huge tax demands going back years under the controversial loan charge policy.
Under the new rules — first introduced by ex-chancellor Philip Hammond — a complex piece of counter-tax avoidance law known as IR35 will be widened to the private sector from April 6 this year. The aim is to crack down on people who work as if they are an employee but under their own private company in order to reduce their tax bills.
But critics warn that the move will end up hammering tens of thousands of people who need the flexibility of contract work — and will end up with far higher tax bills through no fault of their own.
They claim that when the measure was brought into the public sector in 2017, it led to many locum doctors and nurses reducing their hours or retiring early, leaving the NHS with staff shortages.
Dave Chaplin, director of the Stop the Off-Payroll Tax campaign, warned that the economy would be hit hard because many thousands of freelancers would go on "unofficial strike" as they waited to see how the reforms would play out.
"This must be extremely embarrassing for the Tory party who are supposed to be the party of small business," Chaplin told BuzzFeed News. "They're about to decimate the flexible workforce and introduce a new type of employment status of 'no rights employment' — that's just an embarrassment."
Amazing turnout of #contractors & #freelancers the UK’s #flexibleworkforce at @UKParliament at the #StopIR35:#SaveContracting protest. People losing work & facing pay cuts & #ZeroRightsEmployment. Companies sending work offshore #OneMonthtoSaveContracting #StopTheOffPayrollTax
If a company deems a worker to be "inside IR35", the contract worker will effectively have to pay the same level of tax as an employee — without the right to benefits such as sick pay, maternity pay and pension contributions.
It is up to the company who decide who is "inside IR35" but experts say that most firms will be ultra-cautious and include lots more people in that bracket than they should do.
On Monday, a panel of tax experts told a House of Lords committee that the policy was being rushed through with little understanding of the potential consequences, but HMRC was unwilling to discuss it properly.
Anita Monteith, senior policy adviser at the Institute of Chartered Accountants in England and Wales, said: “As you get closer to the deadline for implementing things, I think the consultation process begins to hit the buffers. There are just so many questions that are unanswered — it seems to be going ahead regardless."
Meredith McCammond, chartered tax adviser for the Low Incomes Tax Reform Group, said there was a "blind spot within HMRC as to how the temporary labour market works". She said HMRC had been reluctant to meet her and talk this over.
Conservative peer Lord Forsyth, chair of the House of Lords economic committee, said: "It does all have a familiar feel about it from when we looked at the loan charge."
Farron said he understood the aim behind the policy — to create a level playing field between all workers at a company — but it had been done "ham-fistedly" and did not recognise that in certain industries such as IT and engineering, specialist workers are only needed for short projects before moving elsewhere.
"There are some people who have a multi-year contract and that’s where you could say 'well isn’t this just employment' so I understand why there is a genuine motivation to look at it," he said.
"But lots of contractors, by the nature of what they do, they are there a week or two, a few months — these people do without holiday pay, sick pay or pension contributions so it’s not a ruse, it's a form of employment. The IR35 denies them the benefits and then clobbers them."
Farron has tabled an early day motion calling for a halt to the IR35 roll-out and an independent review into how best to recognise contracting in the tax system, which has so far been signed by 29 MPs from the Lib Dems, Labour, and Plaid Cymru.
Several Conservative MPs have also publicly called for a rethink, including John Redwood and Andrew Bowie, with many others lobbying the Treasury privately.
Critics of the policy point to an article chancellor Sajid Javid wrote a decade ago calling for an end to the "silly IR35 tax on providers of personal services".
Labour MP Rupa Huq told BuzzFeed News: “The government’s decision to change the off-payroll working rules represents a monumental blow to contractors.
"It’s time the government stopped this injustice and launched a much-needed review into the deeply flawed IR35 legislation to find the right way to recognise contracting in the tax system."
HMRC believe the changes will bring in around £3 billion over the next four years. A spokesperson said: "We have put various measures in place to make sure that contractors and businesses know what is happening, what they need to do, and have dedicated teams providing education and support.
"The change to the long-standing off-payroll rules ensures the correct tax and National Insurance contributions is paid by shifting responsibility for employment status decisions from workers to the organisations they work for.
“The change does not affect people who are self-employed under existing employment status tests and will ensure that tax that was always due is paid. Contractors who are complying with the existing rules will feel little impact.”