After months of speculation the Chancellor announced the Autumn 2017 Budget including proposals for the future of IR35.
Although the Chancellor did not mention IR35 in his speech to Parliament, the government announced in the Budget Report its intention to 'carefully consult on how to tackle non-compliance in the private sector' (para 3.7).
Taken at face value it is clear that the government is not sufficiently confident of the impact of this April's reforms to IR35 in order to extend the scope to include the private sector. The period of consultation until an unspecified date in 2018 should allow bodies representing professional contractors to make their case to the Treasury.
Despite claims that 'public sector compliance is increasing as a result' (para 3.7) of the reforms affecting contractors providing services to public sector bodies, it is abundantly clear that both HMRC and the multitude of public sector bodies are unable to deal with engagements for the supply of services via limited companies on a case-by-case basis and extending such reforms to the private sector would have a disproportionate effect on the wider economy. The reforms to IR35 affecting professional contractors providing services to the public sector have damaged the NHS in particular and have caused a rapidly worsening skills crisis. The NHS adopted a blanket policy to IR35 status and it is not inconceivable that a risk averse end-user will adopt the same approach.
HMRC's CEST tool for assessing IR35 status has been shown to produce grossly inaccurate results and it is clear that continued use of the tool will expose HMRC to accusation of promoting tax avoidance. As reported elsewhere, and confirmed by The Law Place Limited's independent tests, an employment status tool which deliberately excludes mutuality of obligations (part of the trinity of tests for employment status) cannot be relied upon.
Act now to stop this proposal
However, as the government has not yet decided upon extending the toxic IR35 reforms to the private sector it is possible to oppose and hopefully derail this proposal. After all, expecting different (or better) results from the same policy is hardly rational.
We are working in conjunction with Contractor Calculator, the UK's leading representative body for professional contractors, to oppose extending last April's IR35 reforms to the private sector and will lobby the government on your behalf.
In addition, the government announced plans to publish a discussion paper on employment status. Whilst a discussion paper is likely to wait until the Supreme Court has handed down judgment in respect of Uber and others, creating a new category of 'dependent contractor' would require substantial legislative changes at a time when Parliament's time is monopolised by withdrawal from the European Union.
Other announcements of interest include increasing the personal allowance to £11,850. However, at para 3.88 the government announced investing a further £155 million in HMRC indicating a renewed intention to take IR35 seriously.
If you have any questions about the impact of the Budget please call on 07788 773871 (24 hours) or complete the form below.