IR35 advisers size up Autumn Budget's big pledge
Personal service companies who contract in the private sector are the biggest losers of Autumn Budget 2017, albeit only potentially and certainly not immediately.
“A possible next step would be to extend the [April IR35] reforms [of the public sector] to the private sector”, the Autumn Budget says under ‘off-payroll working in the private sector.’
“[But] the government [must] take account of the needs of businesses and individuals who would implement any change. Therefore the government will carefully consult”.
'Not as certain'
“The language used is not as certain as the announcement on the off-payroll working in the public sector rules last year,” points out Carolyn Walsh, an umbrella company boss.
A former tax inspector, Walsh believes the government recognises that extending the April framework could mean “burdening” the very businesses which the chancellor expects to bring about a “much-needed increase in productivity.”
She added: “It’s important to remember that a disproportionate number of workers in the public sector are employed through agencies and umbrella companies or PSCs, so the problem was far greater than in the private sector.”
James Poyser, co-founder of contractor accountancy firm inniAccounts, believes the chancellor lived up to his cautious reputation yesterday. “Hammond has opted for the middle ground.
“He's announced a consultation on applying the off-payroll rules in the private sector. This means the earliest we could see off-payroll applied would be April 2019, assuming the chancellor has the will, courage and support to do so.”
ADVANCE, another accounting firm serving contractors, agrees that Mr Hammond is treading carefully -- and not just with IR35, but on other issues which he yesterday decided not to alter. At least for now.
Simon Dolan, boss of Dolan Accountancy sounded cautiously upbeat too. “The government has confirmed that, for now, they will not be implementing the off-payroll rules to the private sector.
“The good news,” he said, “is that the government says it recognises the importance of taking account of the needs of businesses and individuals who would implement any changes.
“We hope [that this] will mean that they look at the issues that arose when implementing the [April IR35 reforms] into the public sector and will learn from those.”
But Seb Maley, chief executive of Qdos Contractor, hinted that Mr Hammond may have yesterday simply planted a subterfuge. And he now may be receiving applause for doing so.
“This [promise to consult] does not gloss over what is a continued attack on the UK’s independent workforce with regards to the off-payroll working rules,” he said.
“That the government plans to explore private sector IR35 is a relief in the sense that reform was not announced today…[but] a consultation doesn’t detract from the bigger issue either, and that is this government failing to take care of the independent workforce with regards to IR35.”
Martin Hesketh of Brookson, a contractor taxation specialist, took issue with the government as well, warning: “Today’s announcement [on off-payroll working in the private sector] will result in a period of uncertainty, and we urge the government to provide further clarity on timescales and the consultation process.”
His comments refer to Autumn Budget 2017 stating that the public sector’s experience of the April IR35 framework will be partly informed by already commissioned external research “due to be published in 2018.” It is this date that gives rise to a possible private sector roll-out in 2019.
But even then, the Association of Recruitment Consultancies says the path will be fraught with difficulties. “The extension of the IR35 rules to the private sector would be highly testing.
“There is significant evidence that the public rules and the means of deploying it by way of an online tool (CEST) are unsatisfactory,” it said. “And there is an argument for saying that both the rules and the means of deployment are incompatible with historical business tax law.”
For now though, the Revenue -- and contractors -- have time to rehearse their arguments, hints Lucy Smith, managing director of Contractor Umbrella. “It was always inevitable that this [a possible extension of April’s IR35 reforms] was likely to be looked at,” she said.
“But it will give contractors a bit of breathing space for a year or two. That said, with the external research already commissioned and due to be published in 2018, it may not be too long after this that the contracting world changes. Yet maybe for once, HMRC will [end up] thinking that the IR35 legislation is manageable from their end.”