Private sector ir35 reform: 1 year to go

One year until IR35 changes in the private sector take effect

As the new tax year looms, contractors will be well aware that 6th April 2019 marks 12 months until the off-payroll working rules are reformed in the private sector - changes that will see the responsibility for setting IR35 status transferred from a contractor to their client, with the fee-paying party in the supply chain set to carry the liability.

Given the impact of public sector reform is still being felt despite being introduced two years ago now, there is an inevitable air of uncertainty among contractors and all the parties that rely on the independent workforce ahead of next April.

Such is the significance of further IR35 changes to the contracting sector, we took a moment to assess the mood among these individuals, the thousands of medium and large companies facing the prospect of administering IR35, and recruiters, who also have a huge role to play in all of this.

How are contractors feeling?

By and large, understandably nervous. The many failings of public sector reform have done little, if anything, to convince independent workers that private sector clients will be ready to set their IR35 status accurately from April 2020.

Contractors are also concerned that end-clients will focus on protecting the IR35 liability they will carry, rather than prioritise well-informed status decisions. This has often been the case in the public sector, with several organisations including The NHS open about the fact they have made blanket inside IR35 determinations.

There are, however, pockets of the contractor workforce that view incoming IR35 reform with more optimism. This includes project manager and author of The Happy Contractor, Alison Parfitt, who told us:

“I believe that private sector companies which are clued up on IR35, commercially savvy and in open dialogue with existing or prospective contractors will be able to implement the rules successfully whilst still being able to attract or retain the contractors they need.

"They should ensure a proper assessment is carried out using IR35 professionals, and avoid risky blanket determinations as we saw in the public sector.”

What are the early signs from private sector companies?

While end-clients have plenty to do in order to be ready for further IR35 changes, the work Qdos is carrying out with private sector companies suggests that a number of them will take reform seriously.

But whether the public sector experience has truly woken the entire private sector up to the reality of blanket-inside IR35 decisions remains to be seen. It’s now down to these businesses to start their preparations immediately to ensure they are ready to administer the IR35 rules fairly and accurately well in advance of the roll-out of further changes.

Contractors simply won’t stand for blanket, risk-averse and ultimately, inaccurate IR35 decisions, while HMRC - albeit still under the impression that role-based IR35 assessments are reliable - has reiterated blanket-inside determinations are not compliant with the rules.

Are recruitment agencies ready for IR35 reform?

Qdos is working closely with over 50 recruitment agencies, including Hays, helping them prepare for IR35 changes. On the whole, it seems that agencies are more attuned to the fact that risk-averse IR35 decisions are not the way forward and early signs suggest recruiters realise the importance of contributing to accurate IR35 assessments.

Contractors would much prefer to work through agencies that prioritise accuracy, meaning that IR35 compliance offers a competitive advantage, as well as peace of mind to recruiters, that will carry the liability when operating as the fee-payer.

Such is the recruitment industry’s reliance on the contractor market for its turnover (£30.85bn of a total £35.7bn in 2017/18), it’s in an agency’s own financial interests to be in a position where they can attract independent workers who, unsurprisingly, view IR35 as one of their main concerns.

Has HMRC changed tack?

In all honesty, no. HMRC has regularly said it will take learnings from public sector IR35 changes, but the opening of the IR35 consultation last month indicated that next year’s reform will all-but mirror initial reform, aside from the fact that small companies will be exempt.

Given thousands of contractors had their status set incorrectly in the public sector, independent workers would like to see HMRC hold the companies that do not administer IR35 with ‘reasonable care’ held accountable. However, the taxman has done little to suggest this will happen.

In addition, HMRC seems compelled to pursue genuinely self-employed contractors in IR35 cases. This was reflected yet again earlier this month, as the well-known TV presenter, Lorraine Kelly, defeated the taxman in what the judges said was not a ‘borderline’ case that carried a huge £1.2m in liability.

HMRC is clearly struggling to understand the very legislation it created, so the need for contractors, recruitment agencies and end-clients to be confident that IR35 is being set correctly has never been more important.

What needs to happen?

To be able to attract contractors going forward and mitigate risk, it’s vital that private sector clients and when involved, recruitment agencies, are in a position to contribute to accurate IR35 determinations on what will be a huge scale.