Consultation begins on private sector contracting
Jun 01, 2018
The Government has launched a formal consultation into how private sector companies use off-payroll working, also known as IR35. It’s part of an ongoing effort to reduce tax avoidance following last year’s reforms which targeted public sector employers.
The Treasury claims it will lose £1.2 billion a year by 2022/23 as a result of individuals setting up their own company and paying tax as though they are self-employed. It says only around 10% of people who should comply with the off-payroll working rules actually do so.
The consultation is looking at whether more contractors who work in this way should be classified as employed, in effect leading to higher income tax and National Insurance bills for contractors.
Last year, rules were introduced to make public sector employers responsible for determining whether IR35 applies to the contractors they use (it was previously the responsibility of the individual) and it’s reported that this change led to £410 million in additional tax receipts.
The government consultation document states: “We want to learn from our experience in the public sector and so are consulting on what steps we could take to reduce the admin burden and ease implementation, if we were to take forward similar reform in the private sector.”
It goes on to state: “We estimate that two thirds of people working through a company are genuinely self-employed and not affected by these rules. But around one third are working like employees.
“The government has made no decisions about how to proceed and wants to consider the evidence of how the public sector reform has gone, as well as the impact on businesses and individuals who would have to implement any change.”
Julia Kermode, Chief Executive of the Freelancer & Contractor Services Association (FCSA), told Personnel Today : “HMRC’s track record on IR35 is dismal and it is unthinkable that it can expect end-hirers to take responsibility for IR35 when it is proven that they cannot implement it properly themselves. The reforms in the public sector have had a devastating impact as has been widely reported.”
Read the Government’s IR35 factsheet for a summary of the consultation.