The last two weeks have seen a flurry of news concerning the contracting community. From an extension to the off-payroll employment status assessment deadline to Sajid Javid resigning from his post as Chancellor of the Exchequer, there’s plenty afoot on the run-up to the private sector IR35 reform rollout date. We’ve rounded up the biggest stories into a digestible summary to make sure you didn’t miss anything.
Sajid Javid resigns as Chancellor of the Exchequer
Sajid Javid resigned from his position of Chancellor of the Exchequer on 13th February after being asked by Prime Minister Boris Johnson to dismiss his team of advisors. Javid’s somewhat abrupt resignation came just eight weeks before he was due to deliver his first Budget, which had been postponed thanks to an extension to the Brexit deadline and a subsequent snap December general election. He was immediately replaced by Rishi Sunak, who has confirmed that Budget 2020 will still go ahead on 11th March; this statement is expected to cement the private sector IR35 roll-out date as 6th April, despite industry pressure to hit pause on the reform.
The official announcement of the private sector IR35 reform implementation date was originally due to be included in the Autumn Budget, which was scheduled for 6th November 2019. Leaving it this late to confirm that the reform is going ahead on time is causing some concern in contracting circles, however. Even with an ongoing House of Lords call for evidence regarding the IR35 reform and organised demonstrations again the legislation, it’s doubtful that any significant changes will be made to the off-payroll rules.
Prepare for IR35 regardless of Sajid Javid’s resignation
Andy Vessey, Head of Tax and resident IR35 specialist at Larsen Howie, voices his concerns that many will take the Chancellor’s resignation, and the Lords’ call for evidence, to mean that the IR35 reform may not go ahead.
“Sajid Javid stepping down as Chancellor of the Exchequer is unlikely to affect the implementation of the new off-payroll rules whatsoever. It’s simply too close to the deadline,” Vessey says. “And while the call for evidence from the Lords’ is welcome, the closing date of 25th February is just two weeks before the scheduled Spring Statement, where it’s expected the intentions for the IR35 reform will be announced. It’ll have to be a considerably rapid turnaround to make any major decisions.”
“That said, there is certainly a precedent for the government postponing legislation in the past – i.e. Making Tax Digital. I would be surprised if this were to happen with the IR35 reforms, but it’s not impossible,” he concludes.
HMRC amends final employment status assessment deadline for IR35 reform
HMRC has published an update to the off-payroll rules legislation that saw the deadline for private sector employment status assessments pushed back by 3 weeks. The policy previously stated that if a contractor’s invoices weren’t paid until post-April 6th, the work that they covered would be counted within the scope of the new IR35 rules. However, it’s now the date that the work was completed by, as opposed to the date the work is paid for, that matters.
While this is certainly good news for those that haven’t begun any preparations yet, it’s unsurprisingly something of a pain point for those that have already been affected. Matt Tyler, IR35 Consultancy Manager at Larsen Howie, comments on this change.
“Instead of the IR35 reform applying to any payment after April 6th for work completed prior to April 6th, it now ONLY applies to work done after 6th April, irrespective of when the payment for the work is made,” Tyler says. “This effectively gives agencies and end clients an extra month to get their ducks in a row, if they haven’t started preparations already.”
Amends to IR35 assessment deadline are double-edged sword
The news of the last-minute amendment to the IR35 assessment deadline has been divisive amongst the contracting community.
“On one hand, it’s understandable that many contractors who’ve already sought work elsewhere to avoid the previous scenario are irked at this eleventh-hour change, essentially giving those that haven’t been as prepared a free pass,” Tyler says. “However, it’s also a small step in the right direction."
"It’s clear that there’re problems with how the IR35 reform is being applied to the private sector – much like there were problems in the public sector – and we can take some small measure of encouragement that there are these minor amends being made.”
Offpayroll.org.uk releases stats illustrating contractor concerns over IR35
Research done by IR35 spotlighting site offpayroll.org.uk suggests that the UK could face a £2.2bn productivity gap thanks to 75% of contractors leaving their UK PLCs for greener pastures. The release from offpayroll.org.uk stated that the ‘unprecedented turnover of self-employed contractors is due to the high levels of mistrust contractors have in HMRC’, claiming that ‘91% don’t trust HMRC’s policy and believe they will start retrospective tax investigations.’ The sample was taken from 1,500 contractors that use the offpayroll.org site.
While these figures are undeniably scary, it’s important to remember that this is a projection. If recruiters and end clients collaborate with contactors to reach a fair IR35 status determination, this loss of workforce is easily avoidable – particularly with contracting as a whole on the rise, despite the challenges the self-employed are facing.
IR35 reform not the end of contracting
The data collated and published by inniAccounts CEO James Poyser's site as to the negative impact on contracting the IR35 reform could have should be a motivating factor for end clients to get the off-payroll rules right. It’s a very small minority of contractors that are being caught by IR35 when using a professional employment status tool or undergoing a manual contract or working practices review, making blanket determinations the higher-risk option - particularly when the potential for contractors to take their skills and experience to a competitor is considered.
Matt Tyler can attest that this matches with what he sees day-to-day.
“When my team are conducting IR35 contract or working practices reviews, it’s very rare that we find that a contractor genuinely falls inside the off-payroll rules,” Tyler says. “Around 95% of contractors we see – from all industries, and from an ever-increasing pool, might I add – are truly self-employed and easily fall outside of IR35. It may take a conversation or two with them to understand their actual situation, but the majority of the time, they’d be perfectly safe for companies to continue working with.”
“It’s knowing this ratio and seeing the IR35 risk blown so out of proportion that makes the widespread PSC bans so disappointing,” he continues. “It also renders companies risking their contractors moving to competitors, getting fined for essential projects not being delivered, or long-term reputational damage that puts talent off completely pointless.”
“If they’d just approached the IR35 reform fairly in the first place, they’d be saved a whole lot of money and resource in the first place.”
How Larsen Howie can help you get ready for the IR35 reform
There are steps you can take, no matter where you sit on the supply chain, to make sure you’re ready for the changes; contract and working practices reviews are the first port of call while educating yourself about what the off-payroll rules mean for you is crucial to staying on the right side of the legislation.
Larsen Howie offers a range of contract and working practices reviews – you can find out which option would be best for you here. We also offer IR35 investigation insurance with representation from Andy Vessey should it go to tribunal, as well as training and consultation for businesses that wish to continue working with their invaluable contractor workforce.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news, and contractor guides.