With the launch of the consultation on off-payroll working in the private sector, the government is edging closer to extending the public sector rules into the private sector. Off-payroll working rules, known as IR35 were introduced in 2000 to ensure that people working through a personal service company (PSC) who would have been employees if they had been engaged directly, pay broadly the same Income Tax and National Insurance contributions (NICs) as if they were employed.
IR35 in public sector
The government introduced the IR35 reforms in public sector on 6 April, 2017. In a report published by HMRC on “Off-Payroll Reform in the Public Sector”, it claims since it was introduced, the public sector tax reform has generated £410 million in additional tax receipts, and that while many contractors made a switch to the private sector to improve their take-home income, it has had a “minimal impact” on staffing.
IR35 in private sector?
In the Autumn Budget 2017, the government had announced that it would consult on how to tackle non-compliance with the off-payroll working rules in the private sector. HMRC has now launched its long awaited consultation into ‘Off-Payroll’ working in the private sector on 18 May which will close on 10 August 2018.
It states that “consultation looks at improving the rules around 'off-payroll' working so contractors who work through their own company pay the right tax."
It further reads: "the consultation will specifically look at how to increase compliance with the existing ‘off-payroll’ working rules. These rules mean that contractors such as IT and management consultants who work through their own company but are in practice employed by a third party, pay the right tax as employees."
"Evidence suggests that the taxpayer could be missing up to £1.2bn a year by 2023 as a result of people getting the rules wrong, and incorrectly paying tax as if they were self-employed. The consultation will look at how to make these rules work better. The genuinely self-employed will not be affected."
Financial Secretary to the Treasury, Mel Stride, said:
"It’s very important that we recognise the hard work of contractors across all sectors, who contribute to our growing economy."
"But it’s also right that we have a fair tax system that balances efficiency and simplicity for taxpayers, while also supporting our vital public services."
"That’s why we’re consulting carefully and welcome a wide range of opinions and evidence on how to tackle non-compliance."
Dave Chaplin, CEO, ContractorCaculator commented “At this stage, the consultation appears to be nothing more than a formality. HMRC claims it is welcoming suggestions for alternative solutions, but if history is anything to go by, this is a done deal.”
He further said "The audacity of HMRC to release this consultation within days of being heavily defeated on IR35 by a contractor in court is incredulous. How can HMRC be expected or trusted to educate the private sector to assess the employment status of workers when they cannot even get it right themselves. If this goes ahead it will be a complete car crash.
Seb Maley, Qdos Contractor CEO, commented, “This consultation is an opportunity for the Government to thoroughly and honestly review the impact private sector reform could have on contractors, engagers and the many other parties in the supply chain.
The Recruitment and Employment Confederation also commented on the consultation with REC Director of Policy Tom Hadley stating, “We support the government’s efforts to improve compliance and ensure everyone pays the right amount of tax but are concerned that the government wants to proceed with reforms which would cause significant upheaval to private sector employers and recruiters. This consultation is a good opportunity to rectify issues such as those with the CEST (check employment status for tax) tool which have been flagged by recruiters.”
If the private sector rollout goes ahead, the recruitment agencies dealing in private sector will need to prepare for a worst case scenario, and make sure they don’t get caught up by last minute preparations for IR35. If you’d like to discuss how these forces are likely to impact your agency and want to prepare yourself for the future, don’t hesitate to get in touch with our IR35 specialists on email@example.com or call on 845 838 2462.