IR35 in private sector
The government confirmed plans for a consultation on extending the IR35 tax avoidance reforms to the private sector in the Autumn Budget.
It has been done quietly – The Chancellor, Philip Hammond, made no mention of extending the IR35 reforms to the private sector during his Autumn Budget 2017 speech, but the supporting documentation said:
“The government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.”
Many saw the IR35 reform in public sector as a trial for the private sector.
HMRC and other government departments, contracting stakeholders have repeatedly urged the government to think twice about extending the reforms without a large-scale public consultation taking place first.
Julia Kermode, CEO of the Freelancer and Contractor Service Association (FCSA), welcomed the government’s decision to consult on the changes, as concerns were previously raised it may press ahead with extending the reforms without one.
Dave Chaplin, CEO and founder of online contracting site Contractor Calculator, said – even with the prospect of a consultation on the cards – the rolling out of the reforms to the private sector is likely to end up being an economic disaster.
“Rolling out the reforms to the private sector will be like pouring glue on the flexible economy,” he said. “Taxes will decrease as people move from lucrative freelancing to lower paid permanent work, and the cost of hiring the remaining contractors will rise as rates go up due to changes in supply and demand.”
Andy Chamberlain, IPSE’s deputy director of policy said that there has not been a proper impact assessment on how the rules have worked in public sector. He thinks that it seems reckless for the government to be thinking about pushing the same set of rules into the private sector when we know it has been so controversial.
Large businesses are reconsidering whether or not they are going to reinvest in the UK because they don’t know how Brexit is going to turn out, and now the government is looking to impose pretty difficult administrative burdens on any company that wishes to access the UK’s flexible labour market .
“When they originally brought in the public sector rules they said the government has no plans to extend them to the private sector, so many private sector organizations did not pay attention [to how things played out] because they were not impacted,” he said.
“Suddenly now, just six months later, they’re considering extending them to the private sector and that is going to cause big issues for business.”
“So, our concern is not just that this is going to impact contractors negatively, but is definitely going to have a negative impact on the businesses that engage contractors and maybe even the economy as a whole.”
“If they were to consult on this properly, I think they would not be able to do this by 2018, and I would hope the government would do a proper consultation with a long lead time to allow businesses to catch up with these rules,” said Chamberlain. “It will be a complete mess if they do it sooner than that. It will be a complete mess anyway.”
The Association of Independent Professionals and the Self-Employed (IPSE) is urging the government to hold off on any plans it may have to extend the reforms until a proper assessment of the impact the changes have had on the public sector to-date is carried out.
David Chaplin, CEO and founder of tax advisory service Contractor Calculator, said extending IR35 to the private sector without giving firms plenty of time to prepare could result in a repeat of the problems the IR35 reforms caused in the public sector.
HMRC’s approach to recent reform suggests they will push on regardless, despite well-formulated arguments backed up by evidence to show changes have not been a success. April 2018 would surely be too soon for the enforcement of reform though, given the size of the private sector.