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IR35 private sector reforms: Q&A with Pam Phillips

28th Jun 2018
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1. What is the biggest opportunity for accountants regarding the IR35 reforms in the private sector?

It very much depends on who your clients are. Our focus is primarily on employers that use consultants in their business and who, in the future, may be responsible for withholding PAYE and NIC from payments made to those consultants.

There is a huge opportunity to offer higher-value advisory services specifically relating to this, especially to clients who rely on using consultants and freelancers in their business. As accountants we are well placed to help employers plan for and manage the impact of these reforms, should they go through, in their business.  

Some of the things we can be doing to help our clients include:

  • Communicating to our clients the IR35 reforms that are being discussed and the consequences of non-compliance.
  • Reviewing the contracts and working practices of the freelancers they use to identify who would need to have PAYE and NIC withheld from payments made to them.
  • Forecasting the impact on their financials of bringing staff on payroll and talking about options they have to help mitigate the additional costs they will suffer as employers.

If the reforms come into effect then there is likely to be additional advisory work supporting clients to challenge HMRC decisions re employment status

Where a contractor does fall within the IR35 rules, advising on and running the more more complicated payroll and bookkeeping processes they will need to implement.

2. What are you most concerned about with the private sector IR35 reforms?

Firstly it is the risk that the reforms are ignored and then down the line HMRC seeking to retrospectively collect the PAYE and NIC that should have been withheld.

Secondly it is the impact of the additional costs that the employers will incur on their bottom-line, such as employers’ NIC, employers’ pension contributions and the administration costs they will need to incur to stay compliant.

Thirdly, there is the risk of a lack of consistency of the application of the reforms between different employers. Some will implement changes quickly and others will wait until they are forced. In the meantime the early implementers of the rules may lose freelancers to others just like we have seen contractors move from public to private sector work in recent years.

Finally, ensuring the record keeping is accurate, particularly with the added complexity of a VAT registered freelancer, will be a practical challenge that employers and their accountants will have to manage.

3. What is one way you have helped or are helping one of your clients prepare for the impending reforms?

Whilst there is still a good deal of uncertainty around whether the reforms will actually be implemented, we are focusing our efforts on those clients we believe will be most affected by the proposed changes. We are having conversations with them about the potential impact of the reforms and what they can do now to manage this.

For the freelancers we use we are have identified those who are at risk and re-visiting conversations about their employment status alongside conversation about the proposed reforms.

When there is more certainty around any reforms we will start communicating more widely with clients to help them to plan for the changes.

4. What are your general views about the private sector reforms and how they'll go.

I'm tending towards the view that the changes already introduced for the public sector will have to be rolled out to the private sector as otherwise the contractor market will continue to be distorted.

As long as contractors can choose to move away from public sector work to private sector to avoid suffering PAYE and Class 1 NIC then they will. Public sectors projects, particularly within HMRC, are suffering as a result. This is likely to incentivise the government to make the changes

IR35 has been around for so long and I have rarely met a contractor who feels they are caught within its scope! I'm not sure their thoughts in this will change but the argument will now be between contractor and employer, which will create tension in some of those relationships.

After qualifying as a Chartered Accountant with PwC and a subsequent stint in an Investment Bank, Pam Phillips was keen to move into the dynamic and exciting world inhabited by entrepreneurs. Seeing a need for close collaboration between business owners and their accountants Phillips went into practice (de Jong Phillips) committed to building a service where entrepreneurs have access to a dedicated accountant and business advisor alongside up-to-date meaningful information about their business.

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