The Government have been under mounting pressure of late to tackle tax avoidance, not least due to the leaked ‘Paradise Papers’ which garnered so much media attention, naming extremely high- profile individuals involved in tax avoidance schemes. It was expected therefore that the Government would take action, and as part of their crackdown on tax avoidance, would finally announce IR35 reform in the private sector.
Somewhat surprisingly, IR35 was not mentioned during the Budget speech itself, but the ‘red book’ refers to IR35 reform within the public sector and a ‘possible’ next step to introduce the rules into the private sector, particularly due to HMRC’s belief that public sector compliance is increasing as a result of the reform.
Despite the so-called success of IR35 in the public sector, the Government do not seem to want to rush into implementing reform into the private sector:
“It is right that the government take account of the needs of businesses and individuals who would implement any change. Therefore the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms…”
A consultation document on the subject will therefore be issued in 2018, so reform is delayed for the time being. A discussion paper will also be published by the Government in response to the Taylor Review on employment practices in the modern economy, in an attempt to finally make the employment status tests for both employment and tax purposes ‘for longer term reform’ much clearer.
We expect actual reform to take place in April 2019 for both consultations, if the external research commissioned by the Government which will also be published early 2018 does not present any unavoidable barriers to implementation.
Contractors concerned about IR35 reform within the private sector now have a bit more time to get to the bottom of their tax status, and starting dialogue with their end client to ensure an understanding regarding actual working practices could prove to be extremely beneficial at this stage. At some point soon, the likelihood is that IR35 will be determined by the end client, and therefore ensuring that the end client appreciates your status as an independent contractor will provide the foresight to ensure that your employment status is correctly determined.
Whilst we would not advise to rely on an opinion provided solely by HMRC ‘s CEST tool, completing this alongside advice provided by an independent expert would also useful. As is the case in the public sector at the moment, end clients will be directed to the CEST tool by HMRC to assist them in making decisions regarding the employment status of their contractors.
For the time being, contractors are afforded a little more time to establish their employment status and it’s crucial that contractors use the time to determine their tax status and hopefully ensure a degree of understanding with their end client whilst they still can. Whether reform goes ahead or not, contractors will remain liable for their status prior to the date of implementation, so the risk of IR35 enquiry remains.