IR35 Consultation for private sector launched

Long-awaited consultation into ‘Off-Payroll’ working in the private sector has been launched by Government.

As indicated at the Autumn Budget, consultations will consider ways to increase compliance in the private sector.

The introduction in the consultation says: “In 2000, the Government introduced the off-payroll working rules known as IR35. These rules ensure that people working through a personal service company (PSC) who would have been employees if they had been engaged directly, pay broadly the same Income Tax and National Insurance contributions (NICs) as if they were employed.

We have estimated that only 10 per cent of individuals working in this way apply the rules properly, costing the Exchequer hundreds of millions of pounds in lost tax revenues every year.”

In April 2017, the government reformed these rules for engagements in the public sector, and early indications are that this has resulted in an increase in public sector compliance.”

The Government claims that off-payroll changes in the public sector have been successful in increasing ‘compliance’, bringing in £410 million in additional revenue for the taxpayer, even though they have been widely criticised.

Extending those reforms to the private sector is the lead option, although the Treasury says that no decisions have been made. It welcomes opinions of the improvement of the reform and alternative options.

Although the Government welcomes responses to the consultation, which can be found on its website, the language in its announcement seemed to signal what lies ahead.

ContractorCalculator CEO, Dave Chaplin said: “At this stage, the consultation appears to be nothing more than a formality. HMRC claims it is welcoming suggestions for alternative solutions, but if history is anything to go by, this is a done deal.”

HMRC claims that the reform has been a success on all fronts. They dismissed factual evidence that demonstrates the damage caused by reforms as ‘anecdotal’.

Numerous stakeholders have submitted evidence to HMRC, based on surveys which attracted thousands of respondents. HMRC has dismissed all this empirical evidence as ‘rumours’.

“But, “notes Chaplin, “If you read the report you can see that HMRC has spared its own blushes by cherry-picking from it for their summary”.  There are numerous examples of omitted critics.

Evidently, HMRC’s favoured option is extending rules into the private sector, even though there are many concerns about implementing IR35 in private sector.

“How can HMRC be expected to educate millions of businesses to assess IR35 when it doesn’t understand the legislation itself,” says Chaplin. “All we will see in the private sector is further non-compliance. Despite what HMRC believes, CEST is rightly being disregarded by many hirers and agencies, as recent FCSA data demonstrates.”

“HMRC is keen to stress that employment status is not a choice. But this tyrannical proposal appears to sanction a regime whereby clients can decide a contractor’s status, with no means of appeal,” comments Chaplin. “As things stand, HMRC can step in and challenge a contractor’s IR35 status. Why shouldn’t a contractor appeal the status assessed for them?”