IR35 reform coming sooner not later, says HMRC

Private sector IR35 reform will happen way before long-term changes to employment status on the back of Matthew Taylor’s already-published review get made, the taxman suggests.

In new IR35 Forum minutes, HMRC says the Taylor response consultation – due this year -- will consider the long term case for reform, but it adds “there is a more immediate need”.

Namely; “to consider how best to tackle private sector non-compliance with the off-payroll working rules,” which -- the Revenue calculates for the first time, will deprive the exchequer of £1.2bn by 2022/23.

'Immediate need'

HMRC has pushed to make only one legislative change to IR35 in its 18-year history (a largely technical tweak for ‘office-holders’). And, until now, it has struggled to put non-compliance in figures.

So the “immediate need” might surprise some, notably those who said a proactive taxman could, if he’d wanted, unveiled the promised private sector IR35 reform consultation as early as last month.

Though officially, an outright “extension” of the public sector’s April 2017 off-payroll rules to the private sector is “only one option in a wide-ranging consultation,” HMRC told the December IR35 Forum.

'April 2019'

But there is no other model being mooted (by the Revenue). Moreover, “immediate need” to tackle private sector IR35 non-compliance was mentioned on three separate occasions by tax staff at the meeting.

“[This is] yet another hint from the government…that changes will be introduced to the private sector perhaps as early as April 2019,” says Seb Maley of IR35 specialists Qdos Contractor.

“Given further reform looks increasingly likely, private sector engagers must communicate with the contractors they engage and ensure them they will be taking appropriate steps to make accurate IR35 decisions.”

'Big engagers'

He is advising private sector outfits that currently have PSCs supplying them to ‘begin preparations now’ -- a process that the “big engagers” were said by an ex-tax officer to have actually started before Christmas.

Almost on cue, HMRC used this latest meeting to announce that the CBI, the UK’s top representative of large private sector employers, will be joining the IR35 Forum as a fully-fledged member.

Other members are just happy that the Revenue is sticking to its plans of consulting before acting.

HMRC said at the meeting: “The Autumn Budget announcement is evidence of the government’s commitment to continued consultation on how to address non-compliance with the off payroll working rules.”

'HMRC-approved narrative'

Industry has said it hopes the consultation is a genuine 'open-minded' exploration, not an outline of what officials have already decided.

Should it be the former, the Revenue will head off receiving a criticism it has received in the past. And there’s evidence in the meeting that the department has learnt from at least one of its past mistakes.

Justifying its decision not to disclose a 12-point list of members’ concerns about the off-payroll rules, and their potential extension, HMRC said: “It would not be appropriate to publish it alongside the minutes of the meeting, where it might be seen as an HMRC-approved narrative on the reform.”