Ever since the Government first announced its intention to introduce ‘off-payroll’ rules within the public sector, the inevitable question has been asked – will these changes be extended to the private sector?
[Please Note – 18th May 2018: The Government has just published its long-awaited consultation into extending the off-payroll working (IR35) rules to the private sector – find out more here.]
Unsurprisingly, since the public sector IR35 changes were implemented in April 2017, this question has been asked more and more.
Hints have been dropped into official documents, and most industry experts seem to have accepted that it is just a question of ‘when’ rather than ‘if’ the off-payroll rules will be extended.
So, what do we know so far?
In October 2017, prior to the last Budget, several press reports contained teasers – including an FT article which stated that the Government is considering extending its fight against ‘bogus self-employment’ to “stem the avoidance of billions of pounds of tax”.
Mel Stride, the financial secretary to the Treasury, claimed that an additional 90,000 more public sector workers were now being taxed as ’employees’ between April and June 2017. But no further details were mentioned.
November 2017 Budget
Contractors were relieved when the November Budget itself contained no immediate extension of the off-payroll rules to the private sector. However, the Red Book noted that “a possible next step would be to extend the reforms to the private sector”.
Section 4.3 of the Red Book stated: “…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.”
December 2017 IR35 Forum Minutes
The recently published December 11th 2017 IR35 Forum minutes confirms that two consultations will be launched in 2018 – one in response to Matthew Taylor’s review of employment practices in the modern economy, and the other on “how to tackle non-compliance in the private sector.”
Significantly, the minutes state that there is an ‘immediate’ need to consider how to deal with ‘non-compliance’ with IR35 in the private sector. Indeed, HMRC believes that this so-called ‘non-compliance’ will have cost the Exchequer £1.2bn by 2022/23.
We asked Seb Maley, CEO of Qdos Contractor, what the Forum minutes tell us about the future for IR35:
“It’s clear that private sector reform is going ahead. With the “related” Good Work plan consultations at the same time, I think we’re looking at a wider change where IR35 is only one part of it. End clients and agencies are likely to be responsible for determining employment status which will apply to both rights and tax, enabling a much more efficient and rewarding process of investigation for HMRC.”
Recent IR35 win for HMRC
HMRC has just won its first IR35 case in 9 years – after a tax tribunal ruled against former BBC presenter Christa Ackroyd – following a lengthy dispute over her employment status.
Ackroyd’s ‘personal service company’ (Christa Ackroyd Media Ltd) was paid for her work as a presenter for the BBC’s Look North programme, however, HMRC claimed that she was an ’employee’ of the BBC for the duration of her contract, rather than a self-employed contractor.
Bill Longe, head of employer solutions at RSM said: “In this instance, it was particularly hard for the tribunal to side with the appellant given her co-presenter on BBC Look North was an employee rather than a contractor.”
However, although the result is unsurprising, the high profile nature of the case (and the fact that there are dozens of other BBC stars being investigated by HMRC) is likely to embolden the Government to take on the private sector.
Implications of IR35 win on private sector extension
When asked what implications the BBC ruling will have for contractors, Maley told us:
“Ms Ackroyd isn’t a typical example of the average PSC contractor, however, the case will likely be used by HMRC to not only further their agenda on pushing IR35 reform into the private sector, but to push forward with more enquiries. This is a huge success for HMRC, especially given there are a number of other appeals in progress, and just goes to show how important it is to have an expert on your side early on in an investigation.”
Chris Thomas, an employment expert from Pinsent Masons, said that the judgement “should act as a warning not only to contractors but also to engagers”, in light of the possible private sector extension.
“Engagers need to act now to assess their exposure and consider remedial action where feasible…”
What do you think?
A completely non-scientific poll of our Twitter followers following the last Budget found that ‘implementation in 2019’ was viewed by our readers as the most likely scenario for the private sector extension.
We’ve launched a new Twitter poll here…
What is your gut feeling on the Treasury extending the IR35 ‘off payroll’ rules to the private sector? (Poll will run for 3 days) – see our article here – https://t.co/7j7OKZhivQ
— IT Contracting (@justcontracting) February 22, 2018