Extension of public sector IR35 changes to the private sector in some shape or form now appears inevitable. Kingsbridge, one of the UK’s leading providers of insurance to the contractor and freelancer industry, welcomes the government’s commitment for consultation and analysis of the true impact of the public sector reforms, before introducing any further measures.
While no announcement was made on the podium about IR35, the industry has been quick to spot two announcements hidden in the small print:
3.7 Off-payroll working in the private sector – The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017. Early indications are that public sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company. It is right that the government take account of the needs of businesses and individuals who would implement any change. Therefore the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.
This pledge, to learn from the public sector IR35 reform and take time to consult on the changes, sends a clear message that a reform to IR35 regulations in the private sector is still firmly on the agenda. Questions remain around ‘when’ and ‘how’, but not if it will happen.
It’s a move that will undeniably create extra compliance hurdles across the board. Using the public-sector movement as an example, we can expect to see more stringent compliance checks from both employers and fee payers, which could lead to an unfortunate but unsurprising reduction in the hiring of the flexible workforce.
While an IR35 reform would be frustrating for the private sector, it’s good that the government are taking the time to consult. The biggest learning to take from the public-sector changes, is to avoid knee jerk-reactions.
Following the April 2017 changes, we witnessed several end clients and recruiters look to impose blanket bans on engaging contractors alongside other steps, only to have to very quickly unwind these measures and take a more considered approach.
We work as a compliance partner to hundreds of agencies and while they understand the need for better compliance practices, they still require support, guidance and time to adapt to the changes. We wouldn’t expect to see any changes come into effect until at least April 2019, giving the market time to effectively plan for the change.