IR35 in 2019: a status expert's review of the year

With 2020 and the arrival of controversial private sector IR35 reform in April nearly upon us, it’s important to take a moment to reflect on the past 12 months which have got us to where we are now, writes Seb Maley, CEO of Qdos Contractor.

When focusing on IR35 in 2019, this year has been eventful to say the least. Dominated by uncertainty, HMRC losses and noble lobbying against the arrival of next April’s reform, this year we’ve seen the good, the bad and the downright ugly on the IR35 front.

The ‘good’ being government promises to hold a review into IR35 reform, and the fact that private sector companies are preparing to engage contractors outside IR35, despite worrying reports of blanket decisions.

The ‘bad’ being Westminster's insistence that public sector changes to IR35, introduced in 2017, have been a roaring success.

And the ‘ugly’ being HMRC’s various and failed attempts at claiming genuine contractors are inside the legislation and insisting that short-sighted IR35 reform will be introduced on April 6th.

In between and relating to these three, there have also been a number of important developments in the year nearly gone. So, as we stand on the brink of private sector IR35 reform, let’s take a final look at what’s now behind us.

Public sector problems remain

While not limited to the start of 2019, the impact of the public sector’s IR35 changes was made apparent. Blanket decisions, which arguably defined reform in 2017 are still being made. This leaves contractors with no choice but to work inside IR35 or face having their contract cancelled.

HMRC has been of very little help, which is of no real surprise. Asked to stamp out blanket decisions, which are not compliant, the taxman explained that role-based determinations - which is when two or more contractors with ‘identical Ts &Cs’ can be assessed as one - are allowed.

This grey area in the legislation has done little to stop blanketing in the public sector and, as we approach private sector IR35 reform, hasn’t deterred several banks from stating that all contractors will be forced into PAYE arrangements before April 2020.

HMRC targets BBC presenters

Again, while HMRC opening up IR35 enquiries into more than 100 BBC presenters started well before 2019, a number of cases concluded this year. Perhaps most notably, Joanna Gosling, David Eades and Tim Willcox, lost their battle with the taxman, despite being made to work as contractors by the broadcaster. As a result, the trio was left to foot a £200,000 - £300,000 tax bill, which the BBC is rightly looking into helping them settle.

After Christa Ackroyd lost her appeal in October this year, it’s likely to be the last tribunal involving BBC presenters, as we head into 2020.

HMRC’s woeful record continues

The taxman showed no sign of changing in 2019 and continued to go the distance in IR35 cases which, upon closer inspection, he had little chance of winning. This year, HMRC won just one IR35 tribunal outright - which was the clear-cut BBC case where the presenters had been made to work as contractors. There was one split decision while the taxman who, let’s not forget, created, enforces and insists on reforming the legislation, lost three. These were defeats to ITV presenters, Lorraine Kelly and Helen Fospero, along with Talksport presenter, Paul Hawksbee.

What does this tell us as we approach Off-Payroll Working in the Private Sector in a few months’ time? Aside from the fact that HMRC wants to win high-profile cases and still cannot fully grasp the legislation, that the taxman is aggressive and on a mission to raise revenues -- granted, not something we didn’t already know, but worth bearing in mind given HMRC can investigate contracts up to six years old.

HSBC sparks bank blanketing

HSBC was one of the first banks to knee-jerk to private sector IR35 reform -- quite early in the year, stating that it will no longer engage PSC contractors outside IR35. Other financial services companies that soon followed suit were Lloyds, Barclays, RBS, Morgan Stanley and M&G Investments. Needless to say, this short-sighted and risk-averse approach has panicked contractors, who were already questioning whether they will be able to operate outside IR35 when reform arrives on April 6th.

While concerning, it should be pointed out that policy decisions like this - and being forced to work through PAYE arrangements - aren’t representative of the entire private sector. Through the work we’re carrying out with over 100 private sector outfits, we’re confident that tens of thousands of outside IR35 opportunities will exist beyond April 2020.

Off-Payroll consultation and response

In the summer, HMRC invited IR35 stakeholders to have their say on the incoming reforms. On the whole, sector experts’ verdict was that changes are unnecessary and until HMRC wakes up to the reality that public sector reform resulted in many inaccurate decisions, private sector changes to IR35 mustn’t go ahead. From CEST’s failings to the unfair appeals process, the argument against the introduction of reform was a strong one.

Predictably, the government, with the tax office in tow, disagreed. Despite promising to listen to the advice of specialists and contractors, who have suffered first-hand the public sector IR35 experience, Westminster remains blinkered and committed to enforcing the changes.

Draft IR35 legislation arrives

The draft IR35 legislation was published in July and, as expected, resembles THE public sector reform in the most part. Aside from the exemption of ‘small’ companies, along with the planned introduction of a ‘status determination statement’ (which end-clients will show contractors and agencies to explain their reasoning behind an IR35 decision) and the ‘client-led disagreement process’ (designed to help contractors dispute decisions), the draft IR35 legislation was uninspiring, to say the least.

IR35 reviews promised

IR35 has made national news throughout the year, meaning politicians have had no choice but to start paying attention to the issue. In the run up to last week’s general election and Boris Johnson’s landslide victory, each major party had its say on the incoming IR35 changes.

The Liberal Democrats promised a review of IR35 in its manifesto, as did the SNP. Labour said it would ‘consult’ on IR35 reform, although there was no mention of the legislation in its manifesto and the party did not release an official statement. Meanwhile, the Conservatives - perhaps after recognising that the Liberal Democrats were reportedly on the cusp of winning the support of contractors - also pledged to review IR35.

While a review is certainly a step in the right direction, that the Conservatives were late to the party is a worry. And understandably, contractors remain sceptical. Will a review be genuine, or has it been floated simply to win the support of independent workers who have been let down by the government in recent years? Only time will tell.

Let’s not forget either that a review doesn’t mean reform will not go ahead. With only a few months to go until these significant changes arrive, the government must get to work and consult on IR35 immediately in the New Year of 2020. Even then, that leaves precious time for the rules to be scrapped by April 6th.

Therefore, as we head into 2020 - a huge year for our sector - contractors must work off the basis that reform will be introduced, despite the belated promise from the government to examine the true impact of the changes.