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Responses to IR35

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The government’s recent IR35 private sector consultation has elicited strong responses from multiple organisations keen to show their frustration and concern that extending the public sector rules into the private sector would be damaging to say the least. Bodies such as the ICAEW, REC, CBI and IPSE have all officially responded to the proposed April 2020 rules, highlighting fundamental flaws in the proposed legislation, particularly in its lack of scope to even address the failings of the public sector off-payroll rules that have had such a controversial impact and resulted in high-profile tribunal cases.

One of the key issues with the latest consultation proposals is the timing. The impact of Brexit is still an unknown and as such, companies of all sizes have based their growth and hiring plans on skilled interim professionals. Regardless of the outcome of Brexit, interim talent is here to stay, both as a lifestyle choice for professionals and as the ideal way to complete projects that don’t justify full-time hires. It is estimated that almost a quarter of the UK’s workforce now works on a contingent basis as a contractor or consultant. There are very few people in it to avoid tax, which is HMRC’s claim, with the vast majority taking their specific skills to a variety of projects as and when they choose, depending on their other work/life priorities. To this end, the bulk of public responses have agreed that April 2020 is at least one year too early to even consider implementing change.

The detail of the legislation is too great for us to address each point, but the criticism across the board was wide-reaching on everything from employment rights; the HMRC’s own tools for employment status checking; through to pointless tax exemptions for smaller companies. While much of the press on the consultation has focused on the employee angle, the responsibilities that will fall on employers shouldn’t be underestimated either. Businesses will have to look at their vetting procedures, contracts, payroll and even their job advertising to ensure complete clarity.

The 2017 public sector IR35 roll-out had a similar negative response, which saw among other reactions, an exodus of contractors from the Ministry of Defence, the Home Office, and even HMRC itself. HMRC that time stood by its proposals (and its additional £500m in tax revenue) so it remains to be seen what their reaction to the criticism over the private sector rules will be. Perhaps there will be inevitable amends once we know the outcome of Brexit, maybe we’ll even see a complete overhaul of the UK tax system – the only thing we know in these times of economic and political uncertainty is that anything could happen!