It is widely predicted that in time the responsibility for setting the employment status of private sector contractors will be handed to the companies that engage them, similar to recent reform in the public sector.
Incorrectly setting contractors’ employment status would leave the private sector company liable for any missing tax.
In many respects the fact that reform was not announced in the recent budget was a relief. That said, an IR35 consultation shouldn’t detract from the fact that the Government are still seriously weighing up the possibility of extending changes to the private sector sooner rather than later.
Reform would be yet another short-sighted way of tackling what the Government claim to be widespread tax avoidance from contractors. But contrary to speculation, potential changes could be managed providing private sector companies and agencies take the right steps to ensure the continued use of contractors.
Here are five ways in which the UK’s 5.5m private sector companies and recruitment agencies could manage potential private sector IR35 reform. Reform would be yet another short-sighted way of tackling what the government claim to be widespread.
An IR35 determination should take into account various factors, not least the aspects unique to the individual contractor being assessed. It is therefore vital that IR35 decisions are reached with the input of all parties in the contractual chain. Accurate IR35 decisions cannot be made without input from the company, the worker and when involved, the recruitment agency.
Make determinations on reality of IR35
There is a huge amount of misinformation about IR35 legislation which has ultimately led, in part, to some public sector bodies making snap and blanket determinations which have no foundation in case law.
HMRC’s CEST tool has received widespread criticism for missing some important factors out, contributing to many inaccurate IR35 decisions. It’s important to remember that this tool is not mandatory.
One stand-out problem caused by recent public sector reform was the lack time; partly caused by HMRC’s lack of guidance, and partly because many organisations didn’t realise the significance of the task that lay ahead.
In time further reform is widely expected. Because of this, private sector companies and agencies must begin preparing well in advance of the legislation actually being enforced. Engaging with contractors is a vital element of this.
Engage with the wider market
Mistakes made in the public sector can’t be made again. Should private sector reform be announced in 2018, we need joined-up and consistent thinking from each party in the contractual chain.
The very downfall of IR35 is its sheer complexity. Given many private sector companies have little experience or in-house resource when it comes to making well-informed employment status decisions, the safest way of ensuring accurate decisions are made is to engage a third party specialist.