IR35 Update July 2018: What's Next for REC Members?

We’ve had a busy few weeks of engagement in response to the government’s publication of its consultation on improving compliance with IR35 in the private sector. On the 4^th of July alone, we attended a ministerial roundtable with Mel Stride MP, Financial Secretary to the Treasury, a roundtable with IPSE and other members of the IR35 Forum and met Peter Dowd MP, Shadow Financial Secretary to the Treasury. Since the consultation was published on 18 May, we’ve also welcomed HMRC and HM Treasury to meet our Employment Policy Committee to discuss the consultation and have been working with other business bodies and employers who would be affected to put forward our concerns about the government’s plans. 

Timelines – April 2019 would be too soon

Business bodies and private sector employers are largely in agreement that introducing changes to IR35 in April 2019 would be far too soon. Recruiters provided detailed examples to HMRC and HMT regarding the changes that would be needed to IT and business processes in order to accommodate the changes. Software developers need a much longer lead time than just a few months. Our members also stressed the upheaval caused by the rushed implementation in the public sector last year, pointing to the issues that still need to be resolved in the NHS and at the BBC. Implementing changes in the private sector will be far more complex and challenging than the public sector due to its size and diversity. Businesses are also expressing concerns about the capacity of HMRC to deal with this challenge and need for greater resources.

Business community needs to work with government to address issue

The Financial Secretary stressed that he is in listening mode, but the parameters of the consultation make clear that the government are minded to take action in this area to deal with non-compliance. We support the government’s efforts to ensure everyone pays the right amount of tax. Our issue is with poorly designed legislation which could damage the flexibility of the UK’s labour market and limit the ability of businesses to get on with day-to-day operations. Alternatives like IPSE’s freelancer company idea, an engager’s tax and with-holding tax similar to the Construction Industry Scheme merit further exploration. The business community would welcome the opportunity to work the government on finding a workable solution.

The REC and business bodies also want to work with the government to limit the administrative burden and costs presented by any changes to IR35. A comprehensive impact assessment needs to be carried out to determine how mang private sector businesses will be affected by the government’s proposals and how. A recent survey by CIPD and IPSE found that four out of five hiring managers had seen a rise in workload involved in engaging and paying contractors, for example.

Ongoing issues with recruiters’ liability, a review of the CEST tool and the introduction of a timely appeals process are all needed as well as clarity regarding the employment rights of inside IR35 contractors.  

And like with any tax changes, the government should be mindful of unintended consequences and behaviour changes that might result from making quick changes with little time for implementation.

What next?

We’ll be continuing our engagement with HMRC and the Treasury over the summer and right up until the Autumn budget to stress the impact that a rushed implementation and poorly designed rules could have on recruiters and the labour market.

We’re holding a webinar later today which you can tune into or listen back to. HMRC are also joining us at our Interim Management Association meeting later this week. We’re keen to get as much feedback from members and sectors as possible. If you have any questions or would like to feed into our response, please email policy@rec.uk.com.