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The expected consultation on Private Sector IR35 reform is now out.  For clients using Personal Service Companies, it’s worth a read.  It’s of wider interest to anyone who engages limited company contractors as well.

For “reform”, read “tightening” – this is about improving perceived IR35 compliance issues on the part of HMRC and HMT, and increasing tax take.

The mainstay of the consultation is about the possibility of using the reverse IR35 rules from the Public Sector in the Private Sector.  A few other options are mentioned, including a withholding tax and employer due diligence rules – whether they are considered serious possibilities, who knows.

it will take a bit of time to pick through this, but as a firm we will reply before the 10 August 2018 deadline.  We suggest that clients respond direct and/or engage their MPs.

A few initial thoughts:

  • HMRC have included “independent research” on the effectiveness of the Public Sector changes.  It’s hard not to reference the idea of “you can get which ever answer you want, depending how you ask the question”.  We withhold judgement as to whether this research is credible.
  • the targets may be wider than you realise – anecdotal evidence suggests there are still, despite the Managed Service Company rules, low paid workers being forced into prepackaged company contracting schemes by “employers”, for example in construction and car valeting, and almost exclusively workers whose first language isn’t English and who are not well paid.  HMRCs sights are on these schemes as much as professionals in IT, engineering and skilled technical and consulting roles.  Maybe the biggest target is the bottom end?
  • reverse IR35 in the Private Sector would be an ambitious set of changes when a government is electorally weak and Brexit appears to be consuming much time and resource.
  • reverse IR35 in the Private Sector would require much education of engagers.
  • in short, there are many questions, and not just those HMRC explicitly consult on.
  • the proposed changes would not alter the fundamentals of whether an engagement is caught by IR35 or not – control, mutality of obligation and personal service are still key here.  What would possibly change is the responsibility for making the assessment of IR35 status – currently the contractor on Private Sector engagements, if a Public Sector model is used it would be the engager.