Autumn Budget 2017: Hammond moves to extend IR35 reforms

A consultation for the much-feared extension of the April IR35 reforms to the private sector was put in place earlier today, when Philip Hammond delivered Autumn Budget 2017.

In a move that experts say could hit contracting more than the introduction of IR35 itself, the chancellor said he would consult on the “possible next step” of rolling out the reforms to cover all PSC engagements.

“How to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms [will be consulted on]”, the Treasury says at chapter 3.7 of the Autumn Budget.

The full report adds that the aim would be “to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company.”

But keen to avoid claims of acting without consulting, the department says that it is first “right that the government take account of the needs of businesses and individuals who would implement any change.”

Jason Piper, a senior tax and business law manager at accounting body ACCA told ContractorUK: “We welcome the announcement of consultation before any further changes are made to the operation of IR35 anti-avoidance rules.”

As to why the body now plans to “work closely with HMRC through the IR35 Forum to explore all the options,” -- rather than oppose the move, Piper said the UK “doesn’t need multiple parallel approaches to the same problem.”

However, as the government has not yet decided upon extending April’s IR35 reforms to the private sector, the consultation period can be used to “oppose and derail this proposal,” says IR35 advisory The Law Place.

“It’s clear that the government is not sufficiently confident of the impact of this April's reforms to IR35 in order to [immediately] extend the scope to include the private sector,” says the advisory’s Martyn Valentine.

“The [announced] period of consultation until an unspecified date in 2018 should allow bodies representing professional contractors to make their case to the Treasury.”

Yet one such body already sounds fully behind the move. “[The chancellor’s commitment to a] ‘careful’ consultation on how to tackle non-compliance in the private sector…is fantastic news”, says the Freelancer and Contractor Services Association.

“It is very positive that the government has not simply bulldozed ahead with legislation that would have a negative impact on the flexible workforce and the UK economy as a whole.”

It is also a positive for it potentially allows the April IR35 reforms to be fine-tuned, the FCSA suggested, assuming the consultation is “genuine and meaningful”.    

“HMRC's online tool ‘Check Employment Status for Tax…ignores a key element of IR35 case law; that of mutuality of obligation,” outlined FCSA’s chief executive Julia Kermode.

“Despite this glaring omission, HMRC continues to believe that its tool does give accurate results, and we…hope that the wider consultation will result in a better, more accurate tool.”

Kate Cottrell, an expert on IR35, also thinks that the contractor sector will be feeling relieved. “Hats off to the chancellor and the Treasury who have both clearly been listening to stakeholders and IR35 Forum members, rather than to HMRC regarding the success of the off-payroll rules”.

The Bauer & Cottrell co-founder added: “Rather than the claims of HMRC that this has been a resounding success we have a carefully worded paragraph [at AB chapter 3.7] using terms such as ‘early indications’ [to say] that public sector compliance is increasing.

“And words such as ‘a possible next step’ in relation to extending it to the private sector.  The government is also very keen to take account of the needs of businesses and individuals and will not just consult but will ‘carefully’ consult. Thank goodness.”

Editor's Note: The Autumn Budget is being discussed on the ContractorUK Forum -- Official ContractorUK Budget Thread 2017. News and expert analysis of the Budget's main announcements affecting contractors will follow on ContractorUK tomorrow, Thursday November 23rd.

22nd November, 2017