Private sector off-payroll rules 'now inevitable’

Three contractor stalwarts who yesterday spoke independently of each other all warned of an “inevitability” to the IR35 reform ‘proposal’ -- warning, in effect, it is bound to become law.

The most muted of them came from the REC, but it too implied the “lead option” of rolling out the public sector’s IR35 reforms universally looked less of an option; more of a certainty.

“The government wants to proceed with reforms which would cause significant upheaval to private sector employers and recruiters,” said REC policy director Tom Hadley.

Graham Fisher, managing director of contractor accountants Orange Genie takes the same subtext from the private sector IR35 reform consultation, published on Friday.

“Unfortunately," he said, "there’s an inevitability that the government needs the cash and doesn’t really understand the damage this move will inflict on the flexible workforce and competitiveness of the UK.”

'Foregone conclusion'

Matt Boddington, an IR35 expert with Chartergates who successfully defended Primary Path and ECR Consulting, agrees. He believes private PSCs had their card marked a while back.

“Almost from the initial announcement of the changes to the IR35 rules in the public sector, extension of the measure to the private sector was inevitable.”

He added: “Given HMRC’s claim of widespread general non-compliance with the original IR35 legislation, it was pretty much a foregone conclusion that HMRC would use the enhanced public sector IR35 rules to tackle the remainder of the freelancer population.”

'Lessons to learn'

Like Fisher, whose firm writes exclusively for ContractorUK today on ‘Five lessons to learn HMRC, before you change IR35 -- again,’ Boddington is critical of HMRC’s current approach.

In the public sector and with the off-payroll rules of April 2017, he likens the Revenue’s approach to taking a sledgehammer to crack a nut.

“HMRC’s assessment of non-compliance is presumably based on their assessment of who should be caught by the legislation,” said Boddington a former tax official.

“However, HMRC’s woeful tribunal record demonstrates that HMRC themselves get this wrong over half the time -- even in cases that they are prepared to take to litigation.

“The inherent danger in the public sector version of IR35 is that it is heavily geared towards taking a safe blanket approach to the legislation, with little analysis on a case-by-case basis”.

And crucially, he adds, there is no sanction for incorrectly deeming a PSC contractor to be inside IR35 -- and then, worse still for the wronged party, no appeal mechanism available.

“Incorrectly operating IR35 is just as equally non-compliant as not operating it when it should be operated,” the former Revenue officer said.

“If IR35 is to be reformed, it should be replaced with a measure which ensures that those that are caught pay up, and those that are not, are not unjustifiably taxed.”


Fisher says it is “important” to put forward such recommendations to HMRC, despite the inevitability of the proposal being put into force. Or perhaps -- because of the inevitability.

“Industry [must] continue to argue against extension of the reform, even though it seems that our objections have been dismissed out of hand as ‘anecdotal’,” he said.

“The implementation of the changes to IR35 in the public sector was chaotic. Any thought that this will be repeated in the private sector with 100 times more organisations is a frightening prospect.”

And he believes it was made more chaotic because of CEST (Check Employment Status for Tax), the IR35 digital tool, introduced as the ESS but renamed shortly after.

On top of his firm's criticisms of CEST, published separately on ContractorUK today, Boddington made some of his own.

“HMRC’s approach [to the off-payroll framework] is founded on the CEST tool, which HMRC claim in the consultation has been ‘rigorously tested against…settled cases’ and ‘reflects employment status case law’.

“This is transparently false,” the ex-tax inspector said. “Several IR35 judgments rely on the mutual obligation to offer and accept work that are inherent in an employment contract to arrive at a decision. HMRC’s CEST tool does not … [it] simply doesn’t reflect IR35 case law.”


However, concerns that organisations found the implementation timetable too tight are being reflected, welcomed Mr Hadley of the Recruitment & Employment Confederation (REC).

“We are pleased to see the government acknowledge that the public sector needed more time to prepare and adapt to the public sector changes,” he said.

“The government needs to learn from this and ensure that there is sufficient time for the implementation of any reforms, introducing changes in April 2019 would be premature. We do not want to see a repeat of the public sector chaos.”

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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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