Hammond uses Budget 2018 to delay IR35 reform
Philip Hammond has used his second Budget since IR35 reforms in the public sector took effect to confirm their extension to the private sector -- albeit with two big caveats.
Firstly, the chancellor said the framework for implementing the IR35 changes in the private sector would not be introduced until April 2020, as opposed to the initially feared April 2019.
Secondly, although the framework means PSCs will lose their right to decide their own IR35 status, it will only apply to those PSCs whose clients are large and medium-sized companies.
Although the two caveats will have their supporters -- many feared the April 2017 changes would apply to all PSCs, and from April 2019, one financial adviser to PSCs is downbeat.
“The extension of public sector IR35 reforms to the private sector is disappointing at best,” said Angela James, director at Contractor Wealth.
“As we move into an uncertain ‘Brexit Britain,’ enterprise is more integral than ever to our economic growth.”
Tax giant EY correctly predicted on the eve of the Budget that private sector IR35 reform would be postponed until April 2020. But the reason why -- Brexit -- could still pose problems.
“With the UK economy facing uncertainty post-Brexit”, it said, “the new rules could make it more difficult for off-payroll workers in the private sector to operate flexibly”.
The announced delay to private sector IR35 reform was hinted at earlier this month by Treasury minister Mel Stride, who revealed the government was, still, “considering the responses” to the May consultation.
Another sign that a full rollout of the 2017 reforms would not be ready for today followed, as HMRC was found to be sending letters to public sector bodies, no more than ‘checking whether the changes are working.’
Tim Stovold, head of tax at Kingston Smith, suggests that while the delay might be welcome by some, it is the immunity that Mr Hammond has granted to PSCs with small-firm clients that many more will embrace.
“With only medium and large businesses having to comply”, Mr Stovold said, citing chapter 3.8 of the Budget Red Book. “this is [going to be] a relief to smaller businesses”.
But the accountant believes that creating one rule for one type of business, and another rule for two other types of businesses, adds complexity.
And crucially, contractors will have to freshly evaluate which rules are in play -- the Intermediaries legislation of 2000 or the Off-Payroll rules of 2020, each and every time they engage a new entity.
“It risks creating chaos for contractors who will still need to consider the existing IR35 rules when working for small businesses and will have to work with the new off-payroll rules when being engaged by larger businesses,” Mr Stovold said.
“A single regime for all businesses, with an implementation timetable that allowed all businesses to adjust their practices, would have been preferred to the complexity businesses and contractors now face.”
David Kirk, founder of tax firm David Kirk and Co said: “Large and medium-sized businesses are those with 50 employees or more and those with either turnover or assets of €10m or more.”
He asked: “[But] how is a contractor to know the size of his or her enager’s workforce or turnover or assets?”
Partly due to the potential complexity of the ‘small business exemption,’ the Association of Recruitment Consultancies backed the chancellor’s deferral of the entire framework.
“[The] delay [until April 2020] is very welcome” says ARC chair Adrian Marlowe.
“This should allow time for a review of the position post Brexit as well as an opportunity for the government to complete its assessment of the employment status rules that were subject to consultations earlier this year. As IR35 relies on employment status tests, it makes sense to have those finalised before any further change.”
'Most adverse change ever for self-employed'
However contractor accountant DNS Associates said that if, as it suspects, 2017’s IR35 changes were the biggest change to self-employed work in about two decades; their now-proposed 2020 successors could come to represent the 'most adverse change in the entire history of such work.'
Managing director Sumit Agarwal said: “We’ve already had one of the biggest changes for the incorporated self-employed in almost two decades.
“Thanks to this government’s very narrow view of contracting by just looking at tax alone, we now have the most adverse change in the entire history of self-employment proposed, albeit delayed until 2020 and only for PSCs with non-small-company clients.”
The Treasury said: "A further consultation on the detailed operation of the reform will be published in the coming months. This consultation will inform the draft Finance Bill legislation, which is expected to be published in Summer 2019."
Editor's Note: Our further coverage of Budget 2018 --
IR35 reform is Budget's biggest revenue-raiser
Devil in the off-payroll rules' detail awaits contractors in 2019
Budget 2018: Top 10 contractor announcements
Budget 2018 -- chancellor's full speech
What a brolly boss makes of Budget 2018
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