First and foremost, and much to the relief of contractors and the extended business community, The Chancellor did not unveil plans to extend IR35 reform into the private sector in his Budget speech. Widely speculated changes were not confirmed in the infamous ‘Red Book’ released immediately afterwards either.
Details were released however on the intention to hold an IR35 consultation, in which the Government plan to explore the possibility of long speculated private sector changes, by reviewing recent public sector changes.
The ‘Red Book’ revealed:
“A possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company. It is right that the government take account of the needs of businesses and individuals who would implement any change.
Therefore the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.”
The Overview of Tax Legislation and Rates report, released the same day gave the same details almost word for word, but also gave an indication that Government research will be released in “early 2018.”
On the one hand this is a short term victory for contractors, private sector companies and recruitment agencies who, for the time being, will not be required to get to grips with changes to the off-payroll working rules that in many respects the public sector continues to struggle with.
On the other hand, the chances that further reform will be introduced in due course remain high. And the success of an IR35 consultation rests entirely on how seriously the Government take it. The consultation must be collaborative and draw on the stark realities and obvious failings of recent public sector reform. They cannot pretend that it has been a success.
It cannot be used as a tool simply to delay an incoming announcement to private sector changes either. You also hope it isn’t simply a tool to avoid inevitable criticism for what would have been yet another attack on the UK’s independent workforce and the companies which engage them.
The research the Government has commissioned in respect of the public sector reform must take into account the issues faced not only by engagers, but by contractors too. After all, it is the contractor who will be forced to pay the same tax as an employee without any employment benefits should engagers set their status as inside IR35 simply to protect their liability.
Given that many were predicting that The Chancellor would announce further IR35 reform in this Budget speech, the news of an IR35 consultation is a positive outcome. That said, it doesn’t gloss over the bigger issue that when it comes to tax and IR35, this Government is undeniably failing the UK’s freelancers and contractors.
A consultation might well delay further reform for the time being, but the threat of IR35 reform remains high. From HMRC’s ignorance regarding their perceived success of recent public sector reform, through to the widely held opinion that the private sector would naturally be next in line for changes, everything still suggests that it is unfortunately a case of when and not if.
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