Long before IR35 changes were enforced in the public sector last year, speculation was mounting about the Government’s intentions to hand private sector businesses the responsibility for setting status too.
Even now, public sector reform is considered a pilot project before the Government roll out similar changes in the private sector. And with HMRC regularly alluding to this, the vast majority of IR35 experts believe further reform is inevitable.
However, we must wait until the Government publishes findings from the ongoing IR35 consultation to learn more. Given fiscal changes are now made only once a year, realistically, the earliest private sector reform will be announced is this November in the Autumn Budget.
But even a 2018 announcement with a 2019 implementation would surely come too soon. Judging by the failures of public sector reform, rolling out changes in the private sector is not the solution. And it’s vital the Government weighs up the reality of the situation before it presses on.
So, here are 10 reasons why private sector reform would be an ill-timed and short-sighted move:
76% of public sector contractors engaged through recruitment agencies are – according to FCSA – still subject to blanket IR35 assessments. This in itself shows the public sector is struggling to cope with reform which, incidentally, was implemented well over a year ago.
Given the public sector is struggling, going ahead with private sector reform would be irresponsible.
Assuming the Government hasn’t already lost the support of contractors, Theresa May and her Cabinet run the risk of angering independent workers further should they extend IR35 reform.
Shortly after public sector changes were enforced in 2017, Qdos Contractor research showed 65% of independent workers did not believe The Conservatives were the most pro-contracting Party. Should IR35 be subject to new and unpopular reform, the Government could anger 2 million contractor voters, not to mention millions more private sector companies.
The private sector is made up of 5.7 million companies which – more than anything – just goes to show the size of the task that could lie ahead of HMRC. No matter what the Government or HMRC says, implementation of public sector rules has not been a success. So how would HMRC firstly enforce IR35 reform then subsequently police these changes in the huge private sector?
No doubt influenced by their experiences in the public sector, 61% of contractors do not believe IR35 reform could be managed. In other words, the majority of independent workers have no confidence they could take on projects outside IR35 should their clients be in charge of setting status.
Clearly, the Government will never understand the consequences of IR35 changes until they listen to the individuals it impacts most.
In the private sector, SMEs account for 99.9% of all businesses. Given the relatively small size of these companies, it’s unlikely many have the depth of knowledge or experience needed to make accurate IR35 status decisions every time they engage a contractor. And clearly, they cannot rely on CEST to do the job for them.
Incidentally, APSCo data shows the majority of agencies working with public sector companies are unconvinced these organisations have the IR35 expertise to deal with recent changes. Ultimately, until private sector businesses become proactive rather than reactive, further reform would be a bad move.
Despite HMRC’s insistence, CEST is not a reliable IR35 solution – certainly not in its current state anyway. Recent reports have revealed HMRC has no evidence to prove the IR35 tool is accurate – yet another indicator that private sector reform would be unwise.
As many as 81% of contractors would be deterred from working on a project if CEST was the only way of assessing status. Not only highlighting contractors’ lack of trust in the tool, this statistic signals that HMRC must address its failings before introducing new changes.
The Treasury’s confidence in the success of public sector reform is unwavering. And this doesn’t bode well for the private sector. Reports are stacking up to suggest public sector reform has – so far – failed, and until HMRC reflects honestly on how and where they went wrong, private sector plans should be shelved.
Following recent changes, 89% of contractors want employment rights if they are made to work inside IR35 by their client. If private sector implementation was to mirror the public sector, contractors could be placed inside IR35, at least initially.
With this in mind, the Government could find themselves under pressure to offer rights to contractors. This is an issue and a cost they must be prepared to face up to should private sector reform materialise.
IR35 experts have speculated as to whether public sector changes have led to increased non-compliance. Thousands of independent workers continue to be subject to blanket determinations, while those fortunate enough to have their individual working arrangement assessed, usually have their IR35 status set by CEST.
In the current climate, rolling out private sector reform could risk non-compliance on a whole new scale.
If implemented in a similar way to public sector reform, new changes would hit the UK’s entire flexible market and economy. Again, APSCo data reflects this, with 78% of members in agreement that extending IR35 off payroll rules will impact the UK’s ability to source flexible labour.
Temporary recruitment makes up £28.2bn of the entire recruitment industry’s £32.2bn annual turnover, while the independent workforce contributes £119bn to the economy each year. To jeopardise this when the Government’s public sector pilot project is obviously struggling would be an unnecessary risk.
Qdos Contractor, contractor insurance and IR35 specialists, have been at the forefront of reform in the public sector, deploying a compliance management system which enables the public sector to undertake comprehensive and independent reviews of their contractors’ statuses, whilst keeping the contractor firmly within the loop.