Hot on the heels of the Autumn Budget, the will-they-won’t-they IR35 private sector story took another turn last week when the government set out its current thinking.
The update came in the form of a Treasury response to an online petition demanding that April’s public sector IR35 reforms are not extended to the private sector.
So what can contractors and recruiters glean from the 443-word message?
We have analysed the text and picked out three key takeaways.
1. The government is treading carefully
Following on from the paragraph on IR35 in the Autumn Budget ‘red book’ documentation, the petition response provides further evidence that the government is taking a ‘softly, softly’ approach.
The Treasury confirms that there will be a government consultation on how to tackle what it calls “non-compliance with the off-payroll working rules in the private sector.”
This extract is a good example of the caution being exercised:
To take account of the needs of businesses and individuals who would implement any change, the Government will carefully consult on reform in the private sector, drawing on the experience of the public sector reforms, including through external research due to be published in the new year.
As we have said previously, given recent form it’s refreshing to see policymakers taking a balanced, cautious approach to any IR35 private sector reforms.
2. An evidence case for IR35 private sector reform is being built
As has been widely predicted, it seems that the public sector changes are being used to build the case for an extension to the private sector.
The Treasury statement contains confirmation that the government intends to “draw on the experience of recent public sector reform.”
Here’s the key section:
The Government is monitoring the impact of its reform of IR35 in the public sector. Initial evidence suggests that it has been successful in improving compliance. More people working through their own company are paying the right tax. However, the cost of non-compliance in the private sector is still growing and will cost taxpayers £1.2 billion a year by 2022/23. Therefore, a possible next step would be to extend these reforms to the private sector.
3. Timescales have not been defined
It looks increasingly that the question is when, not if, the IR35 reforms are rolled out to the private sector. That being said, no dates have been mentioned.
It could well be the case that there is disagreement between Whitehall departments, with HMRC keen to press ahead but the Department for Business, Energy and Industrial Strategy (BEIS) pointing out the dangers of a rushed or botched rollout – especially with Brexit casting a shadow over the UK economy.
The smart money is currently on an April 2019 or even April 2020 implementation.
Click here to read the Treasury response to the online petition in full.