Is IR35 roll-out to the private sector unavoidable?

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The freelance sector are waiting for Mr Hammond to prepare his Budget on November 22nd.  The IR35 reforms that came into effect in the public sector in April are being indicated to be rolled out into the private sector as soon April 2018.  Despite the devastation that the changes caused the public sector, particularly the NHS.

There are numerous arguments opposing a private sector rollout, but many worrying signs that it might be inevitable.

Reasons why the IR35 reforms may hit the private sector

  • A two-tiered system is crippling: contractors say they won’t work in the public sector again unless they are able to work outside IR35, or if the Government pays the extra tax.
  • The public sector is struggling to hire contractors: Projects are being delayed and even cancelled. Many of those that can hire contractors are being charged premiums of at least 25%.
  • A solution is needed before Brexit: The Government will be eager to address this imbalance. A private sector rollout could be a quick and simple solution.
  • HMRC’s tax target has not been met: HMRC claims IR35 non-compliance costs the Treasury £400m each year, but only expects the partial reforms to yield £45m over the next two years.
  • HMRC is in denial: Despite evidence proving that the reforms have been disastrous for project delivery and particularly health services, the taxman denies that there have been any problems.
  • MPs are ill-informed by HMRC: HMRC’s job is to raise money for the Treasury. If the taxman tells the Government that the public sector reforms were a success, a private sector roll out is likely to get the go ahead.
  • The Taylor review supports HMRC’s arguments: The taxman often promotes IR35 as a mechanism to eliminate false self-employment, protecting the vulnerable workers the Taylor Review concentrated on. This argument could be used to force through a private sector rollout.

Reasons why the IR35 reforms won’t hit the private sector

  • Huge business backlash is likely: Proposing a private sector rollout would trigger a furious response from contractors and businesses.
  • The Government is frail: Without a majority to rely on, it may be considered unachievable for the Conservatives to get a private sector roll out through Parliament.
  • The fear of crippling the flexible workforce: The Tories have a primary policy that any job is better than no job. The evidence so far should persuade them that private sector changes would result in a loss of jobs.
  • Government needs to consider reviews: There have been countless reviews into employment status of late, the Government at least needs to evaluate responses to the Taylor Review before considering its strategy and next steps.

One of two possibilities

Over the last 18 years there has been considerable misjudged and damaging legislation heaped on the contracting sector and the sensible option would be to repeal the IR35 reforms altogether. A two-tier system is of course also wrong. However, repeals rarely happen, and neither the Government nor HMRC are in the habit of admitting when they have made a mistake.

There are two possibilities; we will see HMRC and policy makers announce a rollout in April 2018. Or we will see the Government will reduce the IR35 reforms in the public sector and consider how to roll out a tweaked version in April 2019.  Both options are not great for the private sector, UK plc. and the UK economy overall.