The UK government has opened its long-awaited (and dreaded) consultation (PDF) on proposals to extend IR35 off-payroll working in the private sector, which could affect 2 million contractors.
In the Autumn Budget 2017, the government revealed it would consult on how to tackle non-compliance with the off-payroll working rules in the private sector.
HMRC has estimated that only 10 per cent of Personal Service Companies that should apply the legislation actually do so. It reckoned the cost of non-compliance in the private sector is projected to increase from £700m in 2017/18 to £1.2bn in 2022/23.
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.
IR35 was first introduced in 2000 to ensure contractors working like employees, but through a company, would pay similar taxes to other employees. Those rules have been tweaked and changed over the years.
Since April, responsibility for compliance with the IR35 legislation has been shifted from the individual contractor to the public body or recruitment agency - in a bid to raise £185m for 2017/18 by bringing public sector contractors within the scope of the legislation.
While to all intents and purposes, it appears HMRC is keen to extend the controversial public sector reforms onto the private sector, the department was eager to stress this is not a done deal.
"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," it said.
However, HMRC said it also believes "that the available evidence shows that the public sector reform has been effective in tackling noncompliance with the off-payroll working rules".
Earlier this week, a public sector IT contractor won his appeal against Her Majesty's Revenue and Customs to pay £26,000 in back taxes under IR35 legislation.
Seb Maley, chief exec of Qdos Contractor, said:
Chaos and confusion continues to define public sector reform, so the Government would be taking a huge risk to press on and extend changes to the private sector. Until public sector bodies prove they can make accurate IR35 decisions on a large scale, plans for the private sector must be shelved.
This consultation is an opportunity for the Government to thoroughly and honestly review the impact private sector reform could have on contractors, engagers and the many other parties in the supply chain.
The consultation will close on 10 August 2018. ®