Concerns Overlooked in Government’s IR35 Consultation Paper

Concerns Overlooked in Government’s IR35 Consultation Paper

The government has published its response to the ‘Off-Payroll working in the private sector’ consultation. The two-page document confirms IR35 reform in the private sector. In doing so, they have ignored many concerns voiced by respondents.

The IR35 consultation paper being publication coincided with Monday’s Budget. Echoing Chancellor of the Exchequer Philip Hammond’s words, it said that businesses in the private sector will now become responsible for assessing an individual’s employment status. This will bring the private sector in to line with the public sector rules.

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The government said it has listened to stakeholder views during the consultation. Whilst the reform does not apply to the self-employed or introduce a new tax, reaction has been hugely negative.

Catastrophic impact

During the ‘Off-Payroll working in the private sector’ consultation process, many experts warned that changes will have a catastrophic impact on freelancers and contractors – one of the UK’s most productive and dynamic sectors.

“The Chancellor says this is about tackling non-compliance, but the government’s idea of what ‘non-compliance’ looks like has been overturned by the courts in 75% of cases in the last decade,” The Association of Independent Professionals and the Self-Employed, which has campaigned against IR35 reform, said. “The off-payroll rules are so complex and crude that genuinely self-employed people will be swept up by the government’s smash-and-grab mentality and in many cases taxed out of operation.”

Damage already done to the public sector

The rule is already in force in the public sector and caused widespread issues for contractors. This was repeatedly something many highlighted in their feedback during the consultation process. But the government said it has monitored public sector reform and believes compliance is increasing without impacting market flexibility.

The government’s response

Here is what else it had to say in response to the consultation:

  • The reform is not retrospective. It has been in the public sector and HMRC will focus its efforts on ensuring businesses comply with the reform rather than focusing on historic cases
  • HMRC will not carry out targeted campaigns into previous years. This is so  individuals who start paying employment taxes under IR35 for the first time following the reform are protected. Businesses’ decisions about whether their workers are within the rules will not automatically trigger an enquiry into earlier years
  • The reform will not stop anyone working through a company if that suits them. It also does not apply to the self-employed
  • HMRC will provide extensive support and guidance to help businesses implement the offpayroll working rules. This will ensure they apply them correctly, and will ensure the guidance is appropriate to the needs of the private sector, which are more diverse than those of the public sector
  • HMRC continues to work with stakeholders to identify improvements to CEST and wider guidance to ensure it meets the needs of the private sector - enhancements will be tested with stakeholders, operational and legal experts before the reform is implemented.

The future

Only time will tell if the government stays true to its word. In the meantime, it has confirmed it will run another consultation. This time it is to iron out the details and inform its draft Finance Bill legislation, and is planned for publication in summer 2019.

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