Key tax dates and deadlines for 2018/19
It is an inevitable reality that, for anyone earning a livin...
By Dave Allworthy on 7th December 2017
After weeks of “will they, won’t they” conjecture in the the run up to last month’s Autumn Budget, it looks like the changes to IR35 which hit the public sector back in April, will be extended to the private sector at some point.
While no mention of it was made in Chancellor Philip Hammond’s Budget speech, the government’s intention to consult on the issue was laid out in the small print.
In the opinion of HMRC, reforms to “off payroll working” in the public sector have been a roaring success, with IR35 compliance on the rise and the treasury coining it in. Consequently the government have pledged to consult on extending the rules to the private sector, with the findings of the consultation expected some time in 2018.
From April 2017, responsibility for determining IR35 in the public sector shifted from the individual personal service company (PSC) director to the end client.
If the client decides a contract is caught by IR35, it now falls to the “fee-payer” – the party paying the PSC – to deduct the appropriate PAYE tax and NI at source, exactly as they would for an employee on their payroll. To reiterate, this change only applies to public sector contracts – at least for the time being.
When it comes to extending these rules to the private sector, the government’s end game seems clear. This is the wording used in the Budget document:
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 March 2011 HMRC / Treasury Tax Consultation Framework sets out the process for how a consultation should be done.
Currently in terms of the public sector, we are still at the evaluation phase of Step 2 in the process, awaiting the publication of research.
So what does this mean for a possible roll out to the private sector?
The clue is at Step 6 of the consultation process:
“Draft clauses for the Finance Bill will be published for scrutiny at least 3 months before the Bill is introduced to Parliament. The period for comments to be made will be at least 8 weeks”.
With this is mind, unless a consultation comes out imminently, they are unlikely to steamroller this across the private sector in April 2018; with April 2019 looking more probable.
We asked some industry experts for their gut feeling on when, or indeed if, the reforms to IR35 will be extended to the private sector.
John Chaplin, Executive Director of business advisors EY, fears that a rollout to the private sector is looking like a done deal. He said:
“Some observers seem to think that the Consultation in the Spring will provide the opportunity for them to explain just why it won’t work for the private sector and that there is a chance that HMRC will listen, but I think it’s already too late for that. HMRC believe that they already have proof of concept from the public sector, so the Condoc (consultation document) could be as short as “We are going to roll it out to the private sector, discuss!”
In my view, responses to the Condoc will need to focus on how to ensure that any roll out to the private sector is fair and straightforward and not the mess we saw in the public sector”.
Boox CEO, Colin Gunnell, agrees:
“History has taught us that when government announces a tax consultation, what is proposed invariably comes to fruition. I believe that without a comprehensive shakeup of the entire UK tax system, IR35 is here to stay and that the extension of the new determination regime to the private sector is likely to be a case of if, not when”.
Dave Chaplin, CEO of leading contractor website ContractorCalculator believes the government had their own reasons for keeping the timescale vague. He said:
“It was purposely vague in the Budget to keep their options open. They would be brave, and in my opinion, unsuccessful, if they pushed for April 2018. So the likelihood is April 2019. However, by then the economic landscape may have changed considerably and there may not be enough political will to push it through. It could get kicked into the long grass for many years. But then it would leave the public sector in a heavily disadvantaged situation when it comes to hiring contractors for Brexit needs. Damned either way really.”
If you are a contractor operating through a PSC in the private sector, our advice is to “keep calm and carry on”. If and when these rules come into the private sector, we anticipate that they will have a much less disruptive impact than they had in the public sector earlier this year.
For now, it’s important to arm yourself with as much knowledge about IR35 as possible.
We will soon be launching a dedicated IR35 Help section on our website. This will bring together a range of short informative videos and topical blogs tackling the most frequently asked questions about IR35. It is coming soon – so watch this space.
Follow us on Twitter and tweet us your questions on IR35, using hashtag #IR35, and we will do our best to ensure we cover them.
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