IR35 Private Sector Consultation - Feed in to Our Industry's Response

On Friday last week, the government quietly published its consultation into improving compliance with IR35 in the private sector. This is a consultation we have been expecting for months, following confirmation in the Autumn Budget 2017 that this was an area of interest for the government.

The consultation outlines three options for improving compliance with IR35 but the lead suggestion is the extension of the public sector reform to the private sector. The government uses research commissioned by HMRC to bolster its case for the extension of the current rules. Although the report is narrow in scope and focuses on just three areas of the public sector – education, healthcare and defence - it does highlight some of our main concerns with the government’s proposals.

Here is a snapshot of the key findings of the report:

• The overarching message is that while there were issues with implementation in the public sector in the beginning, these have now been addressed. However, this is not what we hear from our members who continue to highlight issues they face with the Check Employment Status for Tax (CEST) tool and feel that a simple extension of the public sector reform to the private sector would be a mistake.
• HMRC estimates that only 10 per cent of personal service companies (PSC) that should apply the current IR35 legislation currently do so in the private sector. They also say the cost of non-compliance in the private sector is projected to grow to £1.2billion by 2022/23. We have big questions about the reliability of these statistics which we will be highlighting in our engagement with government. 
• The data shows a reduction in employment across the sectors surveyed since the reforms were introduced. This is in keeping with the trend towards reduced public sector employment. The report does show however that the engagement of off-payroll contractors fell more quickly than on-payroll employees in keeping with the government’s expectations. 
• Half of the central government bodies surveyed (51 per cent) found the off-payroll working rules difficult to comply with. This is in spite of the dedicated support HMRC said they provided public bodies. 
• 47 per cent of central bodies did not think that they had enough time to prepare for the changes to off-payroll working. This highlights the importance of ensuring any reforms are fit for purpose, introduced over a suitable timeframe alongside detailed guidance and support. 
• 1 in 3 central bodies reported that their ability to fill contractor vacancies had been negatively affected since April 2017. This is unsurprising given the tight labour market at the moment and data we see every month in our Report on Jobs and JobsOutlook reports.
• Public bodies also reported fewer suitable contractors available in the marketplace and that the process for filling contract vacancies had become more time consuming after the reforms came into effect. It is essential that a proper impact assessment of the administrative burden of these reforms is carried out. 
• The report shows mixed views on the usefulness of the CEST tool. 43 per cent of those who had difficulties complying with the legislation attributed this to the CEST tool. This is in keeping with feedback we get from members. 

Feed in to our response 

This report highlights how important it is that our industry responds with evidence and case studies. We’ve had very useful input from members on this issue over the last 18 months but we need further feedback from you. We’ve already conducted one survey on this topic and will be gathering further evidence during the summer.

We’ll be gathering views and case studies on IR35 in June and July at our Wales Policy Forum, Education sector meeting, Northern Ireland Policy forum, Infrastructure forum, Plugging the Gap event and IMA meeting. We’ll also be holding a webinar in July – details will be circulated soon. In the meantime, if you would like to share your views, please email policy@rec.uk.com.