Government announces consultation around private sector IR35 reform

Private Sector IR35

With a certain sense of inevitability, on 18th May the government announced their intention to carry out a consultation on tax avoidance in the private sector.

Any of those in the contracting community with even a passing interest in IR35 legislation will have known this was coming, the question having always been ‘when?’ rather than ‘if’. But what impact is it likely to have going forward?

When announcing the consultation period, the government were at pains to point out that “no decisions have been made” in terms of rolling out IR35 reform into the private sector and made it clear that they were actively seeking opinion on how the rules around the controversial legislation can be improved.

A defence of public sector reform

The consultation document written on off-payroll working in the private sector took several steps to pre-empt the inevitable barrage of incredulity and opprobrium that would (and did) greet the announcement. The document seems aware of the criticism which faced the relatively rapid rollout of public sector IR35 reform, and it appears unlikely there will such a quick turnaround this time (making an April 2019 launch for private sector reform doubtful.)

Despite considerable evidence to the contrary, the government also used the consultation announcement to publicise the ‘successes’ of the public sector IR35 changes. Independent research was commissioned to quash the claims of any naysayers.

The research found that 58% of the 117 participants said their ability to fill contractor vacancies had not changed since the reforms came into force in April 2017, whereas one-in-three (32%) said sourcing contractors had become more difficult as a result.

While 49% of respondents said they found the reforms “easy to comply” with, a “considerable proportion” experienced difficulties during the early stages. However, the research goes on to state that “the main difficulties were related to familiarisation with the public sector reform and resolving disputes with workers and agencies in the early stages of implementing those changes. The ability of public authorities to administer the off-payroll working rules in the public sector improved over time.”

The consultation document concludes by noting: “It is the government’s assessment that the public sector reform has had the intended effect of improving compliance in the public sector, whilst recognising that public authorities and workers found some challenges in implementing the changes required.”

Proposals for the private sector

Having apparently reassured themselves that the previous iteration of the reform went relatively smoothly, the government set out their stall for the forthcoming proposed private sector changes.

The document notes high-level belief in the fact that the “growing cost” of IR35 non-compliance in the private sector needs curbing. Government experts put the cost of non-compliance at £700m presently, with the figure likely to rise to £1.2bn by 2023. Furthermore, the government believes that up to one third of private sector contractors are working within IR35 (despite the declared figure being only 10%.)

The consultation will run until 10th August 2018, with a summary of the findings due for publication “later in the year.” Whilst that timeframe is intentionally vague, it most likely means before the 2018 Budget in November, with some kind of announcement likely to be in the Budget itself.

Negative reactions

As we alluded to at the beginning of this summary, the announcement was met with a volley of derision. Trade bodies FCSA and IPSE both made their fierce opposition clear, neither believing that HMRC will able to handle such a large-scale move with the deftness and sure-handedness that is clearly required.

IPSE CEO Chris Bryce stated that the proposed private sector reforms would be a “fatal blow” to the flexible economy: “Undermining confidence in our flexible, self-employed workforce is the last thing the Government should be doing at this time of great uncertainty over Brexit.”

“How can the Government hold this anti-business consultation when it won’t even know the full tax implications of the changes made last year until people file their tax returns in January 2019?”

With an impasse seemingly already reached – the contracting community vehemently opposed to the government’s claim of a successful public sector rollout – it remains to be seen what the months ahead hold.

On past form, it seems likely that the announcement of a consultation is little more than a sop to placate the masses. Minds in the halls of power have probably long been made up and we should expect to see private sector IR35 reform on the cards from April 2020 onwards. There is always a chance that a different path may be taken, and that the government may listen to the concerns of those who matter, but we for one won’t be holding our breath.

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