IR35 reforms: Consultation on private sector roll-out confirmed in Autumn Budget 2017

The government has used the Autumn Budget to quietly confirm plans for a consultation on extending the IR35 tax avoidance reforms to the private sector, despite fierce opposition to the move from stakeholders.

While the Chancellor, Philip Hammond, made no mention of extending the IR35 reforms to the private sector during his Autumn Budget 2017 speech, the supporting documentation states a consultation into the matter is on the cards.

The Autumn Budget “Red Book” confirms the government is mulling over rolling out the IR35 reforms to the private sector, as part of an ongoing clampdown on limited company contractors working as disguised employees to avoid paying PAYE tax and National Insurance contributions.

“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,” the document states.

According to the Budget documents, a revamp of the IR35 regulations in April 2017 has led to improved levels of compliance in the public sector, after contractors were relieved of responsibility for self-declaring their tax status.

As such, it is now up to the public sector bodies they engage with to decide whether or not contractors should be taxed in the same way as permanent employees (inside IR35) or as off-payroll workers (outside IR35).

It is assumed, therefore, extending the reforms to the private sector will result in SMEs and enterprises having to shoulder the administrative burden of making such declarations for the first time. “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,” the Autumn Budget 2017 documents state.

On the point of public sector compliance, Andy Chamberlain, deputy director of policy at The Association of Independent Professionals and the Self-Employed (IPSE), made the point to Computer Weekly that things may not be all that they seem on that front.

“We strongly believe there is over-compliance going on because there is no liability for saying IR35 does apply, if it turns out it shouldn’t do later down the line,” he said.

“There is only liability if you say it doesn’t apply, and someone comes along and proves it should have done. Then the liability goes back to the client who made the decision, so there is an in-built incentive in these rules to apply IR35 when perhaps it shouldn’t do.”