Off-Payroll is coming to the Private Sector, and there's (probably) no stopping it now!
It is widely believed, disappointingly, that the IR35 public sector rules (off-payroll) are to be extended to the private sector in the budget later this month. This is after the Government decided to ignore any industry advice and only listen to HMRC's self-serving and blinkered view of the success of the April 2017 reforms and their view on the impact of mirroring this to the private sector.
The timing of the implementation is not clear but given that final details of the previous public sector legislation wasn’t released until 2 weeks before the public sector, contractors and the agency community had to comply, it is unlikely it will be delayed until April 2020. A delay that would give the private sector time to understand and prepare for significant change.
You will also be aware if you have read my previous blogs on the subject, the Government’s seemingly blinkered drive to push this through (as they did within the public sector) whilst continuing to ignore the substantial concerns aired by all stakeholders, drives me mad.
HMRC had estimated that an additional £410M of income tax and NICs have been remitted since April 2017. This is before they take into account the drop in both corporation tax and dividend tax receipts from all the PSCs that are deemed inside the legislation. The net gain is something nearer £100m which, while clearly is a lot of money, I suggest it pales into insignificance when compared to the costs incurred by the Public Sector (in time, increased rates, cost of compliance teams etc) and others in the supply chain (recruiters requiring increased compliance teams, additional payroll systems, additional payroll staff, etc etc etc).
From the consultation, it was clear that the Government’s preferred option is to extend off-payroll into the private sector based on the assumption that non-compliance in the sector is widespread and due, to a greater extent, to active avoidance, which needs to be addressed. The consultation suggested that the public sector reforms have been largely successful, and supports the current system for determining employment status, defending the CEST tool (this tool is indefensible!)
Those of you who worked to comply in April 2017 will recall, as I mention above, that the rules weren’t finalised until 2 weeks before the changes came into force, meaning that it was impossible for the majority of the public sector employers and workers to get to grips with the changes in time and so countless incorrect status decisions followed. And no one really understood why their take-home pay changed. You can read a previous rant here.
I don’t think anyone who hasn’t been directly involved with this will comprehend the time, disruption and cost that these changes caused, and now it seems the fears of the entire flexible workforce may come true with the rules extended to the Private Sector.
The Government and HMRC continue to bury their heads in the sand to the fact that many workers have left multiple critical projects and that costs to the public sector have risen. And one thing never considered with these changes, is the costs to the economy in complying with the changes, which I assure you, probably make any tax gains in the Government’s coffers look small.
Where highly skilled workers chose to leave the public sector to work on the private sector to avoid roles deemed inside IR35 (many based on blanket decisions which make a mockery of the legislation) this will no longer be an option. What will be an option is to either leave the contracting market or leave the UK, both affecting the effectiveness and flexibility of the UK labour market.
This ‘solution’ does nothing to tackle false self-employment and merely punishes those that make this country’s flexible workforce, world-class.
If the Government really wants to tackle false self-employment, it could start by creating a statutory definition of self-employment once and for all.
Or, as seems to be its intent, it could create mayhem across the economy just before the UK needs all the competitive advantage it can gain as we step away from the European Union (but that’s another story!)