HMRC are very good at disrupting the market with their subtle propaganda, which has been seen in their drive against tax avoidance schemes and most recently with IR35. Now, HMRC is looking to introduce IR35 in the private sector.
The suggested success of the changes in IR35 in the public sector has been shrouded in controversy, both from contractors themselves and through the fact that planned projects have been put on hold due to increased costs. Despite this, there are now serious rumours that contractors caught by IR35 in the private sector will be affected from April 2019.
HMRC has launched and is calling for responses to its consultation: 'Off-payroll working in the private sector'. However, I cannot see how any lobbying, even by people such as Dave Chaplin from ContractorCalculator will hold any weight. Previous consultations, such as the Advanced Payment Notices were deemed against Human Rights and commentators said this would never be introduced, yet we all know how that ended up.
If IR35 was implemented, the effect on businesses, recruitment agents and contractors would be catastrophic. Look how unprepared the public sector was when it was introduced last April. It took the BBC 6 months to get their house in order and to start taxing companies at source; they are now having issues recovering the arrears.
Learning from the BBC example, it will be interesting to see if companies will take a blanket approach to the CEST test and deduct tax at source, leaving contractors worse off by 30%. Many contractors will want to be added to the payroll to obtain the employment benefits that go with being an employee, and why shouldn’t they? If they are being paid as an employee surely they should get the benefits of being one? This would then have a huge impact on businesses and their HR departments.
Also, will recruitment agents have the time and manpower to assess every contractor to see if they are caught by IR35?
The only saving grace is that April 2019 is when there are a lot of changes being planned. MTD is being implemented for VAT registered businesses and the UK is leaving the EU. We have already seen MTD for individuals delayed due to these issues, so hopefully IR35 might get delayed. Although, that’s the important point to note, IR35 will not go away, only delayed.
This blog comes with a health warning, be aware of what is coming and make sure you are prepared if you are a recruitment agent so you can make the necessary changes quickly and with as little disruption as possible.
Lee Manning is a Partner at Raffingers and specialises in the recruitment sector. For further information or advice on the IR35 changes, firstname.lastname@example.org. You can also follow him on LinkedIn.