On Monday afternoon, the Autumn Budget was released by the Chancellor, Phillip Hammond, which detailed the plan to delay changes to IR35 legislation in the private sector until April 2020.
IR35 legislation in the public sector came into effect in April 2017, and affects recruitment agencies and contractors operating in the public sector. IR35 stands for Inland Revenue press release no. 5, and sets out new rules for intermediaries in the public sector – this refers to companies that supply more than one worker to an end client or provide workers services (as an employer), although this is a very broad definition. The aim is to eliminate tax avoidance where an individual would be the client’s employee, or “employed earner”. Currently, a private sector business working with an individual via a UK intermediary will have no PAYE or NIC liabilities for that arrangement. With the further rollout of IR35, the client will be liable for any tax payments.
The Budget announcement will attract criticism from the contracting sector, as the consultation related to these changes was only launched in May this year. However, the delay until 2020 is good news for contractors and the recruitment industry, as it offers a period of notice before the rollout of the rules. This also allows more time for contractors to present their opinions and evidence against the private sector rollout.
This is a big win and comes after intensive lobbying from the REC and other stakeholders. Having to implement these changes in 2019 - at the same time as dealing with Brexit transition - would have been hugely challenging.By Recruitment & Employment Confederation
However, the Chancellor’s announcement will attract heavy criticism throughout the contract sector, for demonstrating how little it has considered its feedback with the plan to rollout these rules. The implementation of IR35 in the private sector would be very challenging for recruitment agencies and contractors. The client will become liable for any tax avoidance, which introduces huge responsibility to businesses of all sizes. Dave Chaplin, the CEO of ContractorCalculator suggests that Government is reluctant to consider the sector’s difficulty with the proposed rollout. “For a Government that claims to be pro-business, this extra tax will slap an additional 10% cost of hiring flexible workers for growing businesses that are unable to afford full-time workers.”
It is very difficult to determine an individual’s employment status, due to the nature of relationships between the individual, intermediary and public authority clients. However often you read “public sector IR35 reform”, it’s important to remember that it isn’t immediate and it isn’t set in stone. Alterations to the IR35 rules from public sector to private sector have not been confirmed yet, and the delay to 2020 gives companies time to adjust and prepare.