Private sector IR35 reform: what if it happens on Wednesday?

From still problematic Universal Credit, to the delayed introduction of Making Tax Digital, and -- who could forget -- changes to public sector IR35, the government clearly struggles with roll-outs, writes Seb Maley, chief executive of Qdos Contractor.

It was even a topic of focus on BBC’s Question Time recently, when a speaker on the panel pointed to failings in the attempt to change the off-payroll working rules.

It’s almost a given that IR35 reform will soon reach the private sector. And unsurprisingly, the contracting community is waiting to see firstly if changes will be announced in Wednesday’s Budget, and secondly, how the government plans to enforce such measures.

Despite uncertainty continuing to surround the future of IR35, it’s clear that we cannot have a repeat performance of last April. Chaos and confusion defined recent changes which has unsurprisingly impacted UK contracting -- something which HMRC adamantly denies.

If the government intends to extend reform then we have a right to hear about it sooner rather than later. The Budget on Wednesday November 22nd presents the perfect opportunity to shed light on the situation. Quite simply, the more time contractors, private sector organisations and agencies are given to prepare, the better.

While new changes would be in no way helpful, contrary to speculation, it would not mark the beginning of the end. Much like recent reform, further changes can in fact be managed -- a feeling echoed by 61% of contractors in one of our recent surveys.

I don’t believe that reform is a wise nor fair way of stamping out supposed wide-scale tax evasion. I’m simply making the case that it would be a situation which our sector could survive. Largely without help from the government, UK contracting has handled recent reform, so there’s nothing to suggest we couldn’t do it again. That said, for reform to work, recruitment agencies must be pragmatic and not simply push contractor workers through umbrella arrangements as an easy option.

Just this month, The Treasury’s Mel Stride dropped another hint that private sector reform is on the cards. He declared it “an issue of fairness” -- perhaps the biggest indication yet that the government is gearing up for an announcement.

I believe rallies to prevent further reform could well fall on deaf ears. Many saw the public sector as a trial for the private sector, and HMRC is obviously adamant that public sector reform has been a success, with a supposed 90,000 extra contractors working under IR35 since April 6th. But without details on how these contractors were assessed, this figure doesn’t necessarily indicate an increase in compliance.

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.

If and when private sector reform is introduced, HMRC has to approach it in a more structured way. A slapdash approach to helping private sector companies and agencies get to grips with changes before their introduction simply won’t do. IR35 is complex. The government cannot expect private sector companies and agencies to suddenly become experts in the subject overnight.

HMRC might argue that CEST -- the tool built by the taxman to set IR35 status -- exists to simplify the process. But as we know, CEST has been the subject of much criticism. From questionable logic and an over-reliance on substitution, the tool might well have made it easier for engagers to set IR35 status -- but not necessarily accurate ones.

The many layers of IR35 legislation mean that knowledge and expertise is required when it comes to making well-informed decisions. CEST is an all-digital tool which has thrown up unreliable and contradictory results. In the hands of a user who might well have little knowledge of the legislation and experience in setting employment status, we could easily see similar mistakes being made. The tool isn’t fit for purpose in the public sector, so what makes it ready for the private sector?

We have recently urged the chancellor Philip Hammond to end the mounting speculation which surrounds the future of IR35 in the private sector in his Budget speech. But this time round, our sector must be given adequate time to prepare, and the government and HMRC themselves must be fully focused on how they intend to actually apply reform in a practical sense.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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