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IR35 private sector reforms still not fit for purpose
IR35 private sector reforms still not fit for purpose
REC View & Campaigns 07th Jun 2019

Last week (May) the REC submitted our response to the government’s off payroll working in the private sector consultation. Last autumn the chancellor announced his plans to roll out IR35 reform in the private sector in April 2020, the current consultation set out several new proposals for the private sector reforms.

While the REC agrees that all individuals should pay the right amount of tax, we are concerned with the design of the policy reform. Below are four key points we raised in our submission response:

  1. Delay the reform until 2021

We are calling on government to delay the reforms in the private sector to April 2021, so that businesses are able to fully prepare and the problems with CEST can be resolved. With Brexit approaching and ongoing uncertainty impacting business confidence, government cannot afford to introduce badly designed reforms which risk damaging the flexibility of the labour market.

  1. No small companies exemption

Simply put, companies should not be subjected to different tax rules because of their size.  Such an exemption would undermine the off-payroll reforms by exempting up to 95% of businesses (HMRC’s own figures) and cause greater complications to an already complicated tax system. It could also lead to accidental non-compliance from an agency who would have to work out if an end client is a small business or not.

  1. Clients must bear liability for their supply chains.

Under the current proposals, the client makes the IR35 decision but bears no liability for that decision.  In contrast, agencies have little or no influence on the tax status decision or employment status of the off-payroll worker but carry a disproportionate compliance burden and liability. Responsibility and liability go hand in hand and should sit in the same place in the supply chain. 

  1. A statutory process managed by HMRC and not a client led process

HMRC cannot push its statutory obligation to enforce tax legislation onto business. Disagreements about a decision should not be managed by the client who made the initial decision. This HMRC led process must be in place before the reforms come into effect.

The government has committed to publishing draft legislation in July with final legislation promised shortly after the autumn Budget as part of the Finance Bill. However, with the current uncertainty in politics and a fast-changing political landscape where we know we will have a new Government in place shortly, we will continue to make the case to policymakers that implementing ill-thought through legislation would lead to damaging unintended consequences for the labour market.

If you are concerned about the impact of IR35 on your contractors, please sign up to the next IMA sector meeting on 4 July, where we will be helping members to prepare. The REC is also running a series of regional IR35 seminars across the country, you can purchase tickets and find your local dates here.

 

Visit the IR35 Hub

Ornella Nsio - Stakeholder Engagement Manager

Ornella Nsio works with the policy team to represent the interests and concerns of  members to policymakers and stakeholders in a number of sectors including executive search, interim management, financial and legal services, HR and office support. She also works on cross-sectoral issues including employment tax, social mobility and inclusion policy. Prior to joining the REC, Ornella worked in youth and education policy.

View More articles by Ornella Nsio >

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