Just a few weeks into the new year and it’s occurred to me that this is the first in many years when the contracting sector has not been scrambling to adapt to a new change in IR35 tax legislation. Good news surely?
The recent timeline for changes impacting the flexible workforce makes for an interesting read;
2017 – IR35 changes in the public sector and removal of the FRV scheme for most contractors.
2016 – Restrictions to tax relief on expenses for umbrella employees and those subject to IR35, the introduction of the dividend tax and changes to the tax treatment on distributions made on the winding up of a company.
2014 – New rules placing the compliance risk on agencies supplying self-employed workers.
Nearly all of these changes were implemented to tackle perceived non-compliance but have impacted all contractors, most of whom where and continue to operate compliantly. Given no significant tax changes are expected this year are we safe to assume that HMRC have been successful in their bid to tackle non-compliance in the sector so we can press on and do what we do best – working within a highly flexible, highly productive labour market?
Unfortunately, this isn’t the case.
HMRC are still not policing IR35 adequately in the private sector and have not taken sufficient enforcement action to deter the non-compliant contractors, agencies and providers who continue to circumvent the rules. As a result, we are eagerly anticipating what could be the biggest change in the taxation of contractors since IR35 was introduced 17 years ago – HMRC’s consultation on changing IR35 in the private sector. Terminology is important here – traditionally a consultation has been HMRC declaring their plans and interested parties suggesting how it could be tinkered with to make it operational. This is somewhat different to a “discussion document” which floats an idea or issue and looks for input as to how the issue can be resolved. What we are actually waiting for here is HMRC advising us how IR35 will look from April 2019 and asking for comments on how they could make it more workable.
We know this consultation is coming but we don’t know when it will be published. HMRC have commissioned independent research on the impact these changes had in the public sector and are currently digesting the results.
Whenever the consultation is published it will be important that end hirers, recruiters, service providers and contractors all take time to understand what is being proposed and consider how this will impact the availability, cost and productivity of the flexible labour market and feedback accordingly.
So, whilst this may feel like a year of little or no change to the taxation of contractors it could well be a seminal year in terms of defining how this valuable sector of the workforce is taxed for years to come. Time and effort spent in previous years in adapting to change could be invested this year in shaping the changes on the horizon.