The government has been urged to automatically enroll contractors and consultants who will be affected by the reform of the off-payroll working rules.
Under the new proposals announced in the Budget yesterday, 29 October, contractors and consultants will be taxed as employees of the organisation, but will not eligible to receive employee benefits such as a workplace pension with an employer contribution.
The rule, known as IR35, was first rolled-out in the public sector and will be introduced in April 2020, despite fierce opposition from The Association of Independent Professionals and the Self-Employed (IPSE).
Commenting on the changes, Aegon pensions director Steven Cameron said: “It makes sense to class contractors and consultants working for a single employer within the private sector as employees, extending the rules already in place in the public sector.
“With implementation deferred until April 2020, we urge the government to take the next step and ensure they are not only taxed as employees but receive the same benefits as employees, including being automatically enrolled into a workplace pension with an employer contribution.”
According to Chancellor Philip Hammond, the reforms will only effect medium and large businesses.
Hammond said: “The off payroll working rules - known as IR35 – are designed to ensure fairness, so that individuals working side by side in a similar role for the same employer pay the same employment taxes.”
Cameron added that the proposals do not do anything to mend the “glaring hole” in the retirement prospects of the self-employed.
“While bringing these contractors and consultants into auto-enrolment would be a step in the right direction, it would still leave a gaping hole in the retirement prospects of others in the growing army of self-employed and gig economy workers," he said.
Despite this, the government said it will publish a paper setting out its approach to increase pension participation for the self-employed this winter.
IPSE argues that the changes will have a “chilling effect on entrepreneurialism in the UK”.
“The rules also allow big businesses to push their national insurance obligations onto the self-employed, who end up being taxed like employees without any employment rights.
“Once these smallest businesses been forced out, the likes of the Big Four service companies – who don’t have to worry about IR35 – will swoop in and pick up all the contracts,” IPSE CEO Chris Bryce said.