While the Chancellor made no mention of IR35 or intermediaries legislation in his speech, Autumn Budget “Red Book” confirms that government has plans to extend the controversial IR35 reforms to the private sector. However, whether the public sector changes will be applied to private sector is still a subject of consultation.
The off-payroll working rules for public sector came into force on 6 April and since then have been in news for various reasons. As per these rules recruitment agencies supplying staff to the public sector are responsible for determining the taxation status of PSC contractors upon information from the end public sector client as to whether they are legitimately self-employed or disguised employees, and then deduct and pay the employment taxes correctly.
The Budget document states:
3.7 Off-payroll working in the private sector – The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017. Early indications are that public sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company. It is right that the government take account of the needs of businesses and individuals who would implement any change. Therefore the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.
The government’s call for consultation over extending IR35 reforms to private sector instead of directly making an announcement has been largely welcomed by recruitment agencies. Samantha Hurley, director of operations at the Association of Professional Staffing Companies (APSCo), stated: “The government has promised that it will carefully consult on how to tackle non-compliance in the private sector. We hope that this will be an opportunity for a proper review of the public sector changes, and to provide a workable solution to improve compliance in those sectors where there is false self-employment.”
Julia Kermode, CEO of independent trade body the Freelancer and Contractor Services Association (FCSA), in a statement to Recruiter said on the government’s decision not to go ahead yesterday was “fantastic news because what we have seen so far in the public sector has been so devastating and quite far reaching in terms of projects being put on hold”. Kermode said she had “always been concerned” that with around 5.5m private businesses in the UK there would practical difficulties in successfully scaling up the public sector rules in the private sector.
However, despite the government’s decision not to go ahead yesterday, Kermode said, “it is only a matter of time” before the off-payroll rules are introduced into the private sector. Although, she added, she remained “hopeful the government would listen [to argument]”, given what they had heard had led them “to pause rolling it out”. And she said that she had “absolutely not” given up the fight to continue to take the argument to government.
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.