With the introduction of IR35 reforms in the private sector only three months away, HMRC have this week (07th Jan) launched a review into the off-payroll rules. This potentially causes even more confusion, uncertainty, cost and stress as to what the road ahead looks like for hundreds of thousands of contractors and tens of thousands of organisations operating in the private sector.
We are all acutely aware of the pain felt during the implementation of IR35 into the Private sector some two-three years ago. Is the UK government ready to accept that perhaps a rushed through approach of IR35 in the private sector could be somewhat disastrous, potentially even destructive to an already fragile and uncertain (Brexit!) UK economy?
What do we know so far and what should you do if operating in the private sector?
HMRC is trying to balance/realign the books caused by disguised employees, a process that has developed over the last 20 or so years, resulting in money being lost to the Revenue. We therefore don’t think there will be a sudden U-Turn approach, especially when you look at the draft IR35 legislation enclosed in the 2019 finance bill, which estimates that these changes will have a positive impact to the tune of £3.1Billion between 2020 and 2024. There does however appear to be the appetite and prudence to look at ways in which to smoothen the transition.
Financial Secretary to the Treasury Jesse Norman said:
“We recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules. The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.”
The review of the legislation doesn’t have a lot of time and whilst the UK government is now engaging in roundtable discussions with contractor groups as well as applicable UK organisations, there still needs to be a period of final review, publication and decision making within the relevant UK government departments – all in 3 months – seem unlikely anything can move significantly in this dreadfully short timeframe.
We speak with Contractors, Agencies and End-Clients on a daily basis and whilst IR35 has been around a long time (a really long time!), it still surprises us that the proposed legislation (Apr 2020) is not yet fully understood. HMRC is coming under continued pressure to push back the implementation date, something we don’t see happening. There is an ongoing review of the Check Employment Status for Tax (CEST) tool, which too has come under intense scrutiny following its revision and launch in November 2019. Seb Maley, CEO of contractor insurance firm Qdos, said there were still concerns about the tool’s accuracy.
“Despite being tweaked, CEST still isn’t fit for purpose. With IR35 reform only a few months away, recruitment agencies and end-clients shouldn’t rely on it to deliver accurate information regarding a contractor’s IR35 status.”
So, where does this leave us and what should you do as a contractor or agency/end-client engaging private sector contractors? Well, simply put, the safest bet is to continue as if the legislation is an absolute certainty. Ensure that you read, understand and implement the necessary changes to align with the proposed, legislative changes. HMRC provide a plethora of information here: https://www.gov.uk/guidance/understanding-off-payroll-working-ir35 – you should also look to engage the services of specialised IR35 agencies and insurance providers – they can help with the implementation and training process.
Don’t ignore the rules, they are significant, especially if you are the end-client. To gauge the severity, we only need look at the major banking businesses within the UK, most, if not all have now announced a blanket ‘no contractor engagement’ policy out of fear they will fall foul of the looming, yet slightly uncertain legislation.
We would expect that one of the concluding points of the review will be for HMRC to acknowledge that contractors and organisations have not had sufficient information (and to some extent still don’t) to ensure compliance under the legislation and that subsequently more work needs to be done to effectively communicate detailed, unambiguous, well-tested alignment policies. Furthermore, we would expect (hope) that during the first 12-month of implementation up to April 2021 that HMRC will adopt a policy of education and reform to non-compliant individuals and organisations – again this is not a certainty and any blatant attempts to ignore the rules could (most likely will) be met with force by HMRC.
In summary, the review, albeit ongoing, looks like a soft attempt by the UK government to listen to genuine concerns. There is no indication at this stage that would suggest a U-turn or postponement of the legislation, and so close to the implementation date adds further uncertainty and confusion for UK businesses – some might say that the UK economy’s patience is truly being tested!