Government publishes consultation on IR35 changes in the private sector.

New rules.

The government has published its consultation on IR35 “Off Payroll Working Rules from April 2020”, bring criticism and concern from across the recruitment industry and beyond. “The clock is ticking on getting the rules around IR35 right so that they work well for individuals and recruitment agencies, so we are glad to finally get sight of the government’s consultation,” Tom Hadley, REC director of policy and campaigns said.

“We have consistently argued that agencies should not bear responsibility for the client’s decision on who falls into IR35 status,” he says. “We are therefore pleased to see some movement on this, with the government saying that liability for unpaid tax and NICs will rest with the party that did not fulfil its obligations. However, the proposals may well add additional complexities which is why we will continue to engage with HMRC and Treasury to find workable solutions and ensure a level playing field for compliant businesses.

“Unfortunately we have waited longer than anticipated for today’s guidance,” continues Hadley. “This means that the government’s timeline doesn’t leave business the recommended 18 months to prepare for the new rules and REC members are telling us that their clients are largely still unaware of the changes. Recruitment businesses will play a pivotal role in raising awareness throughout their client base and in helping to improve the government’s CEST tool designed to help people check if they are considered in or out of the IR35 rules.”

Hadley also notes that the proposal that small companies should be exempt from having to determine the IR35 status of individuals could create its own challenges as agencies supplying the contractors will need to systematically check the status of the client they are providing services to. “We want to avoid the unintended consequences of a significant burden being placed on those supplying recruitment services,” says Hadley. “Overall, these changes will not be easy to implement by April 2020, but the REC will be working closely with our members and government to ensure the changes are workable and that compliant businesses are not penalised. The stakes are high at this difficult time for the economy, but it is encouraging to hear government explicitly recognise the contribution that contractors make to businesses and public services across the country.”

Meanwhile Julia Kermode, chief executive of The Freelancer & Contractor Services Association (FCSA) drew some positives from the consultation, despite the knowledge that the legislation would still go head. “I am pleased that HMRC is committed to making the supply chain more transparent, requiring better communication with contractors as currently the process is flawed,” she comments. “I am also pleased to read that responsibility for tax and NICs will lie with the last UK-based entity in the chain which will serve to close possible loopholes for offshore schemes. Any move that helps police the industry more effectively and rid the sector of any abusers is a good thing. HMRC’s commitment to reviewing the online tool is also welcome and FCSA is meeting with HMRC next month to share our concerns and make suggestions.

“On the negative side I am disappointed to hear that HMRC is proposing that the five per cent expenses allowance will be removed, in line with the public sector reforms,” she adds. “Now, more than ever, contractors are going to need more accountancy help to navigate the new rules. It was also disappointing that there was no mention of any appeals process being put in place or any details on how to challenge a wrong assessment.”

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