‘Exhaust all IR35 reform options before consulting’

All options around IR35 reform should be exhausted before the government publishes its consultation to extend the public sector’s framework to the private sector, a trade body says.

All the consequences of the framework, updated in April 2017, must also be fully understood by the government and considered as likely to happen to the private sector, warns PRISM.

Outlined in a nine-point impact assessment, those consequences must not be foisted upon firms. “Businesses need time to plan and prepare,” says PRISM’s Crawford Temple.

“A good example of this is the notice given to the soft drinks industry on the introduction of the 'sugar tax.' Businesses were given three years’ notice of the change.

“[As a result] the market has moved significantly, so much so that the chancellor confirmed that they would not collect as much tax as predicted.”

The market moving of its own accord is what Temple wants to happen in the contractor sector – before the government gets to publishing the consultation.

“Now is the time for the sector to be proactive…to influence the direction,” he said. “Waiting to see what the government publishes and then acting is not an option.”

PRISM says two changes around employers NI could “remove all the complexity” associated with the off-payroll rules; would likely be more easily adopted and accounted for correctly.

The body plans to meet with ministers about its proposal, outlined in The Case for Strategic Reform. It will also likely show them its off-payroll impact assessment, reproduced below:

The April 2017 rules for the public sector have resulted in:

Increased Complexity

  • for the public sector, who do not understand the rules and who have often taken a ‘no risk’ blanket approach to the application of IR35 to the detriment of the workers
  • for the workers, who have been given conflicting advice by their accountants and engagers as to whether they are inside/outside IR35. Many [workers] have seen pay reduced to employed levels while acquiring no employment rights
  • for the accounting profession, since invoiced amounts do not match amounts paid
  • for recruitment agencies, since software has been unable to deal with the new rules. This is not yet fixed.

Reduced Compliance

  • as previously stated, the rules are not being applied correctly
  • for workers, who feel unfairly penalised [and so] are seeking out tax avoidance schemes to retain a net pay figure. HMRC needs to ensure that it is on top of these schemes since the tax leakage is substantial

Increased Costs

  • for the public sector, [which] has had to increase rates to retain staff. Although this may be offset in the public sector by extra taxes, in the private sector this will not be the case
  • [for PSCs, because of] the cost of taking advice from IR35 experts and lawyers. These costs would not be easy to bear for private sector companies
  • [for staffing-related professionals, outsourcers and public bodies because of] the cost of outsourcing calculations, since software is not compatible.
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