IR35 Reform in the Private Sector is announced for April 2020
Philip Hammond delivered 2018’s Autumn Budget yesterday which had been highly anticipated by many due to speculation over further reform of the off-payroll (IR35) rules for the private sector.
HMRC seem to have taken onboard concerns that implementing changes too soon would prove to be consequential, instead deciding to delay reform until 2020, giving businesses enough time to prepare:
“The off payroll working rules – known as IR35 – are designed to ensure fairness…so that individuals working side by side in a similar role for the same employer pay the same employment taxes. Last year, we changed the way these rules are enforced in the public sector. But widespread non-compliance also exists in the private sector. So, following our consultation, we will now apply the same changes to private sector organisations as well. But we will delay these changes until April 2020 and we will only apply them to large and medium-sized businesses.”
What will this mean for contractors
Should reform mirror that of the public sector, this will mean that from 6th April 2020, contractors engaged with a large or medium-sized end client will have their employment status determined by their client.
If it is determined that IR35 applies, the ‘fee payer’ will be responsible for deducting PAYE and NICs at source from the income paid to the contractor.
Those engaged to a small business will need to operate the current rules by maintaining responsibility for determining their status.
HMRC have stated that a further consultation will be published “in the coming months” in order to further refine the operation of the new rules. This will likely result in further changes which will apply to both private and public sectors.
Summary of Responses
The ‘Summary of Responses’ document to the consultation on IR35 reform in the private sector (which closed on 10th August) was also published yesterday, with a total of 275 responses received by the Government.
The document begins with a foreword written by Mel Stride MP, who reiterates that ‘’the off-payroll working rules do not affect people who are genuinely self-employed” much to the dismay of many contractors who were forced to work inside of IR35 following the implementation of the off-payroll rules in the public sector.
Despite this, the Government finally appear to recognise that there are failings with the off-payroll rules in the public sector, which they are looking to resolve prior to further reform being implemented in 2020, including the use of blanket decisions and the shortcomings of the Check Employment Status for Tax (CEST) tool:
“HMRC will work in collaboration with stakeholders to better understand the concerns about CEST raised in response to this consultation; these included saying more about mutuality of obligation, how to treat multiple contracts and clarifying the language used in places.”
Whilst it is positive that HMRC finally recognise that there are issues with the CEST tool, many will agree that it is unlikely to be enough to properly improve the tool.
Despite confirmation of IR35 reform into the private sector, we believe that those who are genuinely self-employed should still be able to operate outside of IR35 and continue to run their own business, and we will continue to support contractors and businesses alike, to ensure that genuinely self-employed contractors are treated as such and that clients can continue to engage the flexible labour they need.
Contractors should not panic in response to the news – unlike the public sector, the private sector has been awarded time to prepare for the changes. In the meantime, contractors should continue to assess their status for each contract, communicate with their agencies and end clients ensuring everyone is aware of the challenges faced, and await the next consultation.
So the employment status will be determined by the end client. Do we expect clients to put every contractor under IR35 or can we expect there will be not much change and end clients will still prefer to have contractors outside IR35?
Unfortunately, that answer to that question is simple. Clients have even less knowledge than contractors about how IR35 is applied, even HMRC regularly get it wrong!
If the client gets it wrong and does not deduct tax and NI when it deemed the contractor to be working outside IR35, there is always the chance they will have to pay this tax and NI later when HMRC come to a different decision during an investigation.
So, to limit their exposure, it makes sense for clients to class ALL contractors as working within IR35, then there’s no risk for them!
This legislation is all about removing the decision from the contractor and giving it to the client, who really doesn’t care how the contractor operates.
Usual waffle from Hammond and HMRC. ‘Genuinely self employed,’ according to whom, Hammond and HMRC?
Anyone thinking the CEST will genuinely be overhauled resulting in more accurate decisions, is deluded. They want to capture more tax so, the end result for the CEST will be the same, more caught as ‘inside.’
Where’s the employment ‘rights’ for those caught, Phil? Where’s the holiday pay, the sick pay and other benefits?
If they want to say contractors are not ‘genuinely self employed,’ then they jolly well need to make sure the two people sat side by side, paying the same employment taxes get the same employment benefits.
It’s just a way to kill off the independent skilled freelancer.
This will force us all to work for large consulting practices, enabling the governments buddies running these practices to cream the profits and push all skilled freelancers down to minimum wage. If this happens I’m just going to go on benefits and watch TV all day with my feet up as there will be not point in striving to line someone else’s pockets.
I’m no legal type but just based on common sense how can one entity make and enforce a decision of another entity’s legal or tax status.
This would imply that selective enforcement is being used which is open to prejudice or corruption and is usually considered a legal abuse and a threat to the rule of law.
In particular, big business should not be treated differently from smaller business and, in exactly the same way, there should not be one rule for the rich and another for the poor. (Anthony Thomas)
https://www.taxadvisermagazine.com/article/equal-treatment-and-selective-enforcement
I can remember when GO as shadow chancellor stated that when the conservatives come to power he would abolish IR35. Now look where we are today.
In 2020 I will be closing my company down (maybe sooner) and looking to work somewhere else where my skills will not be subjected to unfair, unjust, and draconian taxes, or undemocratic retro taxation.