Government must shed light on potential reform to private sector IR35

Research suggests that potential private sector IR35 reform is UK contractor’s no.1 concern

In a week when the deadline for Making Tax Digital (MTD) was sensibly delayed until April 2020, giving the self-employed extra time to prepare for quarterly and online tax reporting, UK freelancers and contractors were no doubt left wondering why similar measures weren’t taken to ensure the industry’s readiness for recent public sector IR35 reform.

That said, with last week’s update to the 2017 Finance Bill out of the way, the Government now has a clear opportunity to focus on IR35, and either confirm or quash rumours surrounding private sector IR35 reform which have been circulating since the very hint at potential changes to public sector IR35 some years ago.

Public sector IR35 reform is widely considered a test-run, before similar changes are rolled out in the private sector. However, given the sheer panic and confusion which ensued upon the announcement and subsequent arrival of the new public sector IR35 rules, any move to introduce such changes to the private sector will not be a popular one.

This is echoed by 48% of contractors in our latest research, which revealed that rumoured change to private sector IR35 is their number one business concern. Put into context, this dwarfs the 18% of contractors who are most worried about competition for contracts by more than two and a half times.

That pertinent issues such as the lack of Government support for the self-employed (17%), ongoing fear over public sector IR35 changes (10%) and a variety of other pressing business concerns (7%), are considered less important to UK contractors just goes to highlight how worrying rumours around private sector IR35 reform really are for many UK contractors.

Concern among contractors that IR35 reform will be extended to the private sector is very real. But given the chaos caused by recent public sector reform, would any move to make changes to private sector IR35 be wise? Arguably not.

Qdos Contractor is working closely with a number of public sector bodies and agencies, working hard to ensure the fair and continued use of contractors in the public sector. And while our work has been instrumental in reversing a number of inaccurate blanket IR35 determinations, Government would have been wise to allow contractors, public sector organisations and agencies more than the year given to prepare for such seismic changes to UK contracting and public sector hiring.

To rush through similar changes to private sector IR35 is not advisable, given the concern voiced by the UK contracting community, not to mention the recent chaos caused by changes to public sector IR35.

The level of support the Government gives to the self-employed is already under close scrutiny, with last week’s Taylor Review highlighting the need for extra help in different forms for the UK’s 4.8million freelancers, contractors and self-employed people.

And while the crucial economic role of the self-employed is often highlighted in Party manifestos and pledges, it’s crucial the Government now listens to the independent workforce, who together contributed £119bn to the UK economy last year. Ultimately, it’s in their best interests to do so.

If private sector IR35 reform is rolled out in a similar fashion to April’s public sector reform; hurriedly and without the level of input needed from our industry’s most influential voices, we could have a repeat performance on our hands.

While the largest proportion of contractors surveyed (36%) revealed they would continue contracting regardless of private sector IR35 reform, a concerning 33% of contractors stated they would consider heading into employment.

Given the growing economic and social importance of the UK’s independent workforce, the Government should think carefully about if and when they decide to roll out controversial private sector IR35 reform. We would hope the shockwave of potentially a third of private sector contractors going employed would send a strong enough message to Theresa May and her Cabinet that reform should be avoided.

Around one in five contractors (19%) are prepared to consider a different career altogether should private sector IR35 be reformed, while 12% have alternative plans – the most common of which include; retiring early, or emigrating to continue contracting overseas without the danger of IR35 hanging over their head. Judging by this set of survey results, the Government would be shooting themselves in the foot.

While it’s clear that drastic changes to private sector IR35 would not be welcomed, it’s telling that the largest percentage of contractors would indeed continue working independently regardless of any changes to IR35. The vast majority of the UK’s independent workforce choose to work this way for the freedom and control it brings, rather than the tax advantages.

And although there has been no formal confirmation that IR35 reform will extend to the private sector at this stage, the general feeling among many industry experts is that it is not a matter of ‘if’ but ‘when’.

We urge Government to learn from their previous mistakes, clear the cloud of uncertainty on the topic and offer clarity on the situation. How long can our sector really be left in the dark again?