Behind the haze of the summer heatwave, the government was gathering responses to its consultation on tackling non-compliance with the off-payroll rules (IR35) in the private sector.
The consultation closed on 10th August, but not before the Recruitment & Employment Confederation (REC) had its say. As the professional body and trusted voice of the UK recruitment industry, the response was the culmination of months of engagement with its members, business bodies and government.
Learning from the public sector experience
In its response, the REC urged the government to learn from the IR35 reforms in the public sector, introduced in April 2017.
These changes saw the responsibility for IR35 compliance shift from the individual to the public sector body engaging them. Also, where a public sector contract is deemed as caught by IR35, it now falls to the agency (where it is fee-payer) to deduct the appropriate tax and NI at source.
This was highly disruptive, bringing confusion, increased administration and cases of contractors voting with their feet and walking out on public sector contracts.
In a bid to avoid a repeat in the private sector, the REC appealed to the government to adopt an approach that gives businesses time to prepare, resolves the issues with the IR35 legislation and reduces the administrative burden seen in the public sector.
The organisation also called for a long-term approach to tax and employment status, rather than just more tweaks to existing legislation. Alluding to Brexit, they stressed that at this time of uncertainty, the government can’t afford to introduce reforms which risk damaging the flexibility of the labour market.
REC’s 5 recommendations for IR35 in the private sector
1. Conduct a comprehensive impact assessment of the public sector reform and an analysis of the impact changes could have on the private sector.
In the REC’s view, the IFF research published in the consultation was limited in scope, as it did not cover the full tax compliance cycle which only ends in January 2019 and did not consult with the REC or its members.
2. Allow the government’s consultations following the Taylor Review to run their course.
The government’s response to the recent employment status consultation, and any proposals it makes, could have significant consequences on tax and employment status. Until these are known, it is premature to proceed with changes to IR35 in the public sector.
3. Allow businesses sufficient time to prepare for the changes.
According to the REC, April 2019 would be far too soon to introduce changes to IR35 in the private sector. Even HMRC’s own research showed that public sector bodies would have benefited from more time to prepare for the 2017 changes.
4. Resolve issues with the public sector reform rather than replicate these in the private sector.
The REC emphasised the need for ongoing issues in the public sector to be resolved before any changes to IR35 in the private sector are considered. Failing to address these issues and press on with reforms could damage private sector productivity.
5. Liability must rest with the end user client and the end user must be responsible for the compliance of its supply chain.
The REC argued that it can’t be right that an agency, where it is fee payer (ie. the party paying the limited company) is wholly liable for an IR35 decision that is made by the end client.
Eyes shift to the Autumn Budget
The REC has outlined its recommendations in the interests of its members and the flexible labour market in general. Whether the government takes heed of its informed views, and that of other respondents, remains to be seen.
Will IR35 reform in the private sector be in 2019 or 2020, or will it be kicked into the long grass?
Will there be a cut and paste roll out of the public sector IR35 rules or some variation of them?
It’s a case of wait and see, with focus now shifting to the Autumn Budget, the date of which should be announced imminently.