IR35 - Our Messages to the Government Ahead of the Spring Statement

Delivering his first Autumn Statement in 2016, Chancellor Philip Hammond struck a playful tone as he delivered the news that he would be ending the Spring Budget, and instead moving the year’s major financial event to the autumn. We welcomed this move as a single fiscal event will allow for improved parliamentary scrutiny of legislation and more streamlined administration and planning for businesses.

What to expect

The Chancellor is now preparing to deliver his very first Spring Statement on 13 March. It is expected that this will be a low key affair with the Chancellor delivering a short 15 minute speech. In the speech, the Chancellor will provide a short response to fiscal forecasts from the Office for Budget Responsibility (OBR) and explore policy options ahead of the budget in the autumn. The financial secretary to the Treasury Mel Stride has said that the Treasury would be “telegraphing the types of things people might expect to see in the Budget in the autumn so that we give people plenty of notice about what we’re looking at and we’re able to get their feedback and responses”.

IR35

With this in mind, it’s possible that the government could provide information on its consultation on compliance with IR35 in the private sector. This could mean the extension of the rules in operation in the public sector to the private sector as early as April 2019. Ahead of the Spring Statement, we’ve written to the financial secretary to urge him to proceed cautiously. Our reasons for this include:

• The government’s consultation on employment status in response to Matthew Taylor’s review should be allowed to run its course first. Rather than tinkering around the edges with IR35, a more holistic approach to tax and employment status is needed.

• The full tax compliance cycle also needs to be taken into consideration. Introducing changes before this would be premature.

• In addition, lessons from the public sector experience need to be addressed. For example, members continue to tell us that the ‘Check employment status for tax’ (CEST) tool is not fit for purpose and needs to be fixed.

• Sufficient time needs to be allowed to engage and educate private sector employers. The Federation of Small Businesses report that small businesses and the self-employed believe that IR35 is the most difficult tax issue to understand.

• Brexit, of course, also poses challenges. New rules that are not fit for purpose risk leading to unintended consequences which could damage the flexibility and competitiveness of the UK’s labour market at a time when businesses are already dealing with the uncertainty of Brexit.

Next steps

We’ll be monitoring developments on 13 March and will update members on the day. When the consultation is published, we will be able to consult members on the detail of these proposals. We carried out a survey before Christmas and need your help to build on this evidence base. If you would like to contribute, please contact policy@rec.uk. We’ll also be continuing our work to represent the industry and influence this agenda with other affected business organisations.