The government published the long-awaited IR35 consultation on 18 May 2018 for improving compliance with off-payroll working rules. While the scope of the report is narrow focusing on just three public sector areas — healthcare, education, and defence – it has a far-reaching impact on the UK economy.
The consultation proposed extending the IR35 reform to the private sector. At present, IR35 off-payroll working rules are applicable to the public sector. The government had cited statistics compiled by the HM Revenue & Customs (HMRC) to support the case for extending the tax reform to the private sector.
The main message of the consultation is that while there were issues in implementing IR35 reform in the public sector, the problems have been ironed out. Though, industry experts believe that there are still a lot of issues such as the absence of Mutuality Of Obligation (MOO) in the Check Employment Status for Tax (CEST) tool used for determining the IR35 status.
Moreover, questions have been raised regarding the reliability of statistics mentioned in the report. Experts say that there is doubt over the estimates of HMRC that only 10 percent of personal service companies (PSC) apply the IR35 rules in the private sector. In addition, the statistics that the cost of non-compliance will increase to £1.2 billion by 2022/23 is doubtable.
The consultation also states that around 51 percent of the public-sector companies had found it difficult to comply with IR35 rules. This is despite the fact that HMRC has stated that it provides dedicated support for compliance with the rules.
Another questionable point in the report is that the public-sector employment has reduced since the IR35 reforms were introduced. However, the report failed to highlight the fact that the engagement of off-payroll contractors had decreased more quickly as compared to on-payroll employees as per the expectations of the government.
The Recruitment & Employment Confederation (REC) and The Association of Independent Professionals and the Self Employed (IPSE) both have stated that they have found a lot of discrepancies in the consultation. There have been serious oversights and lapses by HMRC in the report.
According to Chris Bryce, CEO of IPSE, the organization has decided to challenge the proposal. Furthermore, REC has carried out a survey regarding the topic and will gather further evidence this summer to highlight inconsistencies in the consultation.
The consultation has been released just days after HMRC was heavily defeated by a contractor on an IR35 court case.