In its 2018 Budget the government announced its intention to enact the plans in April 2020, a delay to the original schedule. The latest consultation seeks to ensure the proposals are suitable for the private sector, it said.
The consultation states that it 'is intended to provide organisations and off-payroll workers with greater certainty around how the off-payroll working rules will operate from 6 April 2020 and the obligations and responsibilities of the various parties involved in the labour supply chain.'
It adds: ‘The government understands that many organisations will be keen to begin preparations and has therefore included in the education and support section of this document actions that affected organisations can take now to prepare for the reform.’
But critics have dismissed the consultation as a formality, expressing doubts over whether feedback will be listened to or acted on.
Seb Maley, CEO of Qdos, said that the reforms to IR35 in the public sector saw thousands of contractors taxed unfairly. He said that, despite this consultation, it looked at this stage like the government would approach the private sector roll-out similarly.
“As part of the IR35 consultation, the government promised to review the true impact of public sector reform. However, it still sees increased tax revenues as a sign of success and increased compliance. The thousands of contractors who have been forced inside IR35 without a fair assessment of their working arrangements and have therefore been overtaxed no doubt beg to differ," he said.
“Aside from making small companies exempt from private sector reform and the promise of making one or two other tweaks, incoming changes do – at this point in time – look very similar to the ones introduced in the public sector in 2017. Given public sector reform has not been a success, the information [now] released... makes it all the more important that private sector companies prepare for reform immediately and do not wholly rely on the taxman for support.”
Dave Chaplin, CEO and founder of ContractorCalculator, warned that the changes could be damaging to businesses: “How are firms going to assess the employment status of over 500,000 PSC [Personal Service Company] workers accurately, starting next month for those entering 12-month contracts? Time and time again we have told HMRC that rolling out the reforms is going to be hugely damaging for UK plc but our warnings and evidence to prove it have fallen on deaf ears," he said.
Chaplin added that companies may struggle to hire on-demand contingent workers without a ‘considerable’ tax risk as a result of the new rules.
“This could encourage companies to hire off-shore talent based in markets outside of the UK where the threat of tax risk is not part of their day-to-day operations… The off-payroll rules impose a significant barrier to business growth and a threat to the future prosperity of the UK economy. This legislation effectively raises a sign to entrepreneurs saying 'do not start a company here.'"
As an alternative, he proposed a separate off-payroll tax for contingent workers. “If the government wants to raise tax from the flexible workforce, who work off-payroll, they should simply introduce a new simple off-payroll tax, payable by every firm that hires contingent workers, and discontinue their misguided crackdown on their concept of 'disguised employment'," he said. "With Brexit on the horizon, more uncertainty in the shape of the off-payroll tax will be disastrous.”
Rhiannon Kinghall Were, head of tax policy at Macfarlanes, said that HR should work with tax and legal professionals ahead of 2020: “Businesses will use contractors differently depending on their needs. There are different caveats in determining employee status under IR35, so HR should work in conjunction with the tax department to make sure they get this right. Similarly if a business were to decide that a contractor is an employee for tax purposes, there will be legal implications that come with it,” she told HR magazine.
“These changes are set to come into force in 2020, but if a company starts using a contractor in the next few months, they would fall under the new rules. So we'd definitely recommend that HR starts thinking about these changes sooner rather than later.”
