The Autumn Budget confirmed rumours that the government would start a consultation exercise about rolling out the IR35 tax rules to the private sector.
Paragraph 3.7 of the Budget report “Off-payroll working in the private sector” explained that since the rules were extended to the public sector in April, “Early indications are that public sector compliance is increasing as a result.”
With this apparent success, the tax department is thinking of extending the regime to the private sector, “to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company”.
While the consultation has been announced, there was no sign of a policy paper on Budget day.
As AccountingWEB member eapoffice responded last week to an article predicting the move from ContactorCalculator.co.uk's Dave Chaplin, the Conservatives made noises about abolishing IR35 when they were in opposition, but now appear to be falling in line with HMRC’s line of thinking.
The consultation is already fuelling controversy in the contracting community. The government announcement appeared to acknowledge these concerns and pointed to a softly, softly approach drawing on “experience of the public sector reforms” and external research. This information – and presumably the consultation document itself – are due to be published in early 2018.
Flagging up the Budget announcement for its members ContractorCalculator.co.uk explained that the public sector IR35 rules introduced in April shifted responsibility for evaluating the IR35 status of each contract to the organisation engaging the contractor, which would then be responsible for deducting PAYE.
And if recruitment agencies supplied contractors caught by IR35 they would be responsible for deducting tax. Shifting the burden of liability up the supply chain “creates a huge incentive for clients and agencies to assess contractors as caught by IR35, which contractors are well aware of. Extending these rules could mean many contractors will struggle to ever secure a fair IR35 assessment,” the site warned.
Andy Chamberlain, the IR35 policy spokesman at the independent contractors’ association IPSE also voiced concern. “We think it’ll be a complete disaster. It would put a huge restriction on the UK’s flexible labour market, which is one of our best competitive advantages,” he said.
“As we exit the EU, it’s more important than ever that UK retains its reputation as an easy place to do business.”
Commenting on the issue last week, AccountingWEB member Nigel Harris said, “My impression is that public sector employers are applying the new rules on a blanket basis, irrespective of the merits of the contractor's contract and working practices, etc. If HMRC/Gov pressurises private sector employers to do the same, then the contracting sector is sunk.”
Both contractor groups feared that the government would extend IR35 to the private sector by next April, but the Budget announcement points to a more considered approach.
“We’re pleased to see the government has listened and is promising a ‘careful consultation’ and to look at impact on the public sector. We think the government needs to stand back and take a wide aspect view of changing labour market, and look at the employed-self employed boundary to clarify it both for employment status and tax status,” said Chamberlain.
As an aside, he held a faint hope that the research on the impact of IR35 on public sector projects might convince the government to backtrack.
Dave Chaplin at ContractorCalculator.co.uk had a word of warning for accountants. “If you have got lots of contractors who are likely to be caught then you need to start worrying, and anyone on 12-month contracts that start after April 2018 need to consider IR35 compliance.”
About John Stokdyk
AccountingWEB’s global editor has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.