The Government has announced its intention to consult on the extension to the private sector of the IR35 reforms, introduced in the public sector earlier this year.
In April 2017 new legislation came into effect modifying the tax rules that apply to off-payroll workers providing their services to public sector bodies via intermediaries. The changes constituted a major amendment to the legislation commonly referred to as IR35.
Broadly, the new rules shift the burden of identifying who is within IR35 to the end user of the services (where that end user is a public sector body) and then requiring the fee payer to withhold tax and NIC at source if IR35 does apply.
It remains opens to debate as to whether the new rules are working well at the moment. Anecdotal evidence suggests that problems do remain. These would need to be ironed out before an extension to the private sector could realistically be considered.
The announcement of the consultation This will give HMRC more time to resolve any remaining issues while maintaining forward momentum. It will also allow for the wider consultation on employment status - no matter how one looks at it, IR35 is closely related to a much wider employment status discussion, so it would be welcome if they were to proceed hand-in-hand.
We believe that a fundamental review is required of the way in which the UK taxes labour in the 21st century. And we would hope that any such future reform would lead to a narrowing of the current fiscal differences between employment and self-employment, reducing their influence on the way in which workers are engaged, particularly as regards the NIC position.
But both politically and economically, these are challenging times. Such fundamental reform may not be considered a viable option at present. Even implementing an extension of IR35 to the private sector could prove difficult; the scale of this change for the private sector should not be underestimated and the consultation response is likely to reflect the scale of the changes required.
At least the decision to consult gives the Chancellor more time to get a feel for the road ahead and for business to begin preparing for change as required.
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