IR35 consultation: why it’s here & what it says
A long-awaited government consultation on reforming IR35 in the private sector was published on May 18th 2018.
Although the document was only promised six months ago, its ‘lead option’ of extending changes to IR35 made in the public sector into the private sector, was foreseen back in 2016.
The 32-page document indicates that HMRC’s IR35 legislation of 2000 is largely ignored in the private sector, as it says that ‘in 90% of cases, the rules are not applied correctly.’
This non-compliance in the private sector remains so “endemic” and “extensive” that it is projected by HMRC to increase from £700 million in 2017/18, to £1.2 billion in 2022/23.
So the ‘lead’ solution that the government is considering is to superimpose a framework it introduced in April 2017 in the public sector, in response to the “the same problem.”
Rather than leave it up to PSCs to decide their IR35 status, which was the case traditionally (and is the case today in the private sector), the onus for deciding status switches to clients.
By putting this method in place, HMRC no longer has to spend 18 months individually assessing each PSC it suspects; it can simply approach one end-user and look into all PSCs.
So far since April 2017, this framework has resulted in an extra 58,000 people paying income tax and NICs, contributing to an additional £410million revenue haul for the government.
The framework is now going to be considered until August 10th 2018 for rollout to the private sector as well, with affected parties able to have their say by post/email before then.
But ‘no decisions have been taken,’ emphasises the government, sounding aware it has been criticised in the past for making up its mind before asking IR35 stakeholders for their views.
To try to prove it has not settled on extending the framework of making the engager (not the PSC) set status, it has mooted two other solutions -- either of which could be adopted instead.
The first relates to record-keeping: ‘require clients that make payments to retain details’ so ‘HMRC can quickly see those details should it want to probe one or more PSCs.’
The second relates to assurances and checks: ‘introduce rules to require clients to assure the compliance of their labour supply chains by carrying out checks.’
Both enforcement models are outlined on pages 24 and 25 of the consultation, above a list of potential solutions to IR35 non-compliance in the private sector which have been ruled out.
Readers of the consultation should note it is divided in two. The first part is a review of (and research on) the public sector rules; the second part is on finding a fix for the private sector.
Case studies showing IR35 compliance / non-compliance have also been published in the consultation (‘Charlie’, page 9), and in a new HMRC factsheet (‘Alan’ and ‘Jemima’).
‘Myths and Facts’ about the public sector rules are also on the factsheet, which HMRC recommends people read, alongside the research, before they respond to the consultation.
