In May, HMRC issued their eagerly-awaited consultation on IR35 reforms in the private sector which they confirmed “looks at improving the rules around ‘off-payroll’ working so contractors who work through their own company pay the right tax.” Friday 10th August is the deadline to respond to this consultation before HMRC deliberate on the changes they will implement. We would expect the Government to provide any further updates on their proposals in the Autumn budget later in the year.
The Brookson Group is one of the largest service providers for independent consultants, freelance and self-employed professionals in the UK providing professional legal, tax, accountancy, bookkeeping and financial services to this niche sector. This consultation is of particular interest to us, particularly given that our legal services business has undertaken tens of thousands of IR35 reviews since the legislation was first introduced.
Whilst we support the rationale behind considering a change to the off-payroll legislation to address non-compliance with the existing rules and to address the issues caused by an unlevel playing field between the public and private sectors, we have serious concerns about the unintended consequences of the recent public sector changes and the possibility of rush through legislation causing damage to the flexibility of skilled contract resource.
In our response to the consultation we have proposed a number of key recommendations for the Government to consider; including:
- An April 2019 implementation date for any reform in the private sector should be ruled out as soon as possible.
- The public-sector reforms should be amended / revoked following a more comprehensive review of its impacts following the end of a complete compliance cycle and taking into account feedback from all stakeholders, not just public sector bodies. In our view the review of the public-sector reforms set out in the consultation document, the accompanying “factsheet” and HMRC’s published research provide a misleading picture of the impact of the public sector reforms. There has been a number of significant unintended consequences of the public sector changes, including higher levels of non-compliance. For example, many genuinely self-employed contractors have had PAYE incorrectly applied to their assignment income without any of the associated employment rights being conferred. And many contractors in the public sector now no longer work via a PSC but via a non-compliant payroll vehicle.
- We believe that given the failure of the public-sector reforms and the volume and significance of the unintended consequences, that an alternative approach is required. Further consideration should be given to the merits of using increased record keeping requirements and supply chain compliance as the preferred methods for enhancing compliance with the existing IR35 private sector legislation. We believe this type of approach addresses the compliance challenges currently faced within the industry and will be efficient for HMRC to enforce and will not overtly burden clients, PSCs or agencies.
This consultation provides HMRC with the opportunity to ensure any changes implemented are properly thought through and take into account recommendations from across the industry submitted as part of the consultation process. We hope they are willing to listen and engage with relevant stakeholders, take sufficient time to fully consider the options available to manage compliance better and resist the temptation to fast track ill thought through legislation which has the potential to damage the professional contractor market. With Brexit on the horizon, this cohort of the UK’s workforce will be instrumental in navigating UK plc through what will be an uncertain economic period requiring the private sector to remain agile and be able to quickly adapt and flex. Now is most certainly not the time to introduce any further unforeseen consequences resulting from poor tax policy decisions.
For more information download our free Guide to IR35