The Recruitment and Employment Confederation (REC) and leaders from 14 of the UK's top recruitment firms have written to the Chancellor expressing concerns about the planned changes to IR35 rules. The letter calls for a delay of the legislation until 2021, and for the Chancellor to "pause and think again on IR35 changes".

Commenting on the letter, REC Chief Executive Neil Carberry said:

“It’s absolutely right that everyone pays the right amount of tax, and by working with recruiters and other businesses closely, the government could ensure that this legislation works exactly as intended.

“But the extension of IR35 into the private sector, as it currently stands, will punish ethical businesses, harm workers and provide the environment for non-compliance to thrive. It’s always good to see further opportunities for engagement opening up, so we welcomed the review. But without a delay to implementation real change is impossible. We need to get the rules right, deliver on regulation for umbrella companies and have proper enforcement in place before pressing go. That’s why leaders of the UK’s top recruitment firms supported today’s REC letter to the Chancellor, asking that he looks again at the timing and structure of the IR35 review. Delaying will allow MPs to properly take stock of the impact the legislation will have.”

The letter states:

Every day, firms in the recruitment industry place a million people into temporary and contract work. That makes recruiters experts when it comes to the world of work. We can see that this policy requires a far more extensive rethink than the limited review set up recently on the back of your commitment during the General Election campaign.

We agree that it is vital that people pay the right amount of tax, and that the system is fair. That is why we think you need to pause and think again on IR35 changes that risk poorer treatment of contractors and compliant companies losing out to those who bend the rules.

Our primary concern is that the effective regulation of umbrella companies government has promised will not be in place in time for April – creating huge opportunities for avoidance. At the same time, compliant companies won’t have enough time to understand all the legislation given the significant delays that have taken place. Through no fault of their own, they will have insufficient time to work with their clients to get the approach right. We are already seeing examples of projects being binned and work taken offshore, damaging growth here – and ultimately, the tax take.

The roll out of the Loan Charge last year showed us what happens when badly designed changes are implemented. Government must be prudent and apply lessons from the loan charge to the IR35 reforms in the private sector. This is even more pertinent given the other significant legislative changes related to the Good Work Plan and Brexit which employers are already busy with.

Making any necessary changes in 2021 would give space for a more detailed review and also grant government sufficient time to implement any suggestions from it - including effective enforcement. The current timetable leaves only 17 working days between the publication of final legislation on 11 March and implementation on 6 April.

You have our full commitment to working with you on getting this right. We have two main suggestions on how you might approach the issue:

Adopt an independent chair and body to review
As with the loan charge review, a review of the off payroll working rules in the private sector must be carried out independently, outside of HMRC. This would enhance the legitimacy of the government’s final position and win business confidence. Major businesses, including most of the banking sector, have already announced they will no longer engage contractors due to a lack of confidence in the legislation. That will just damage growth and productivity. Businesses need reassurance that the reforms will be fair and clear and not leave them vulnerable to unnecessary tax risks.

Take on board lessons from the public sector implementation
An assessment of the public sector reform and an analysis of the impact that changes could have on the private sector is fundamental to a genuine review of the private sector reforms. This impact assessment must cover the full tax compliance cycle which concludes in January 2020. “There is much evidence which shows there are ongoing issues with the public sector reform. These problems need to be fixed before any changes can be implemented in the private sector. There is no point in creating difficulty in the private sector when it can be avoided through lessons learned in the public sector.

The UK labour market has withstood tough times, however, its resilience should not be taken for granted. Pushing ahead with tax legislation without a considerable review of its impact could severely damage the economy, compliant firms, workers and the tax take.