Budget 2018 is only 14 days away and speculation regarding whether the Government will decide to implement further IR35 reform has reached fever pitch, with many experts already predicting that this is a done deal.
Let’s face it, having already implemented IR35 reform in the public sector in April 2017, the Government don’t really have a lot of work to do, and the question really is why further reform wouldn’t be announced in the impending Budget?
It has been announced that IR35 reform within the public sector has brought in an estimated additional £410m in unpaid taxes, and although the figure hasn’t been backed up by HMRC with any concrete evidence, this is surely reason enough for HMRC to not delay any further and look to introduce IR35 reform into the private sector.
But there is something which might put a spanner in the works; the Brexit negotiations. IR35 reform within the public sector has – whether HMRC will admit or not – already had a significant impact on the UK Economy and further reform, combined with Brexit, is likely to have disastrous consequences. Further reform will not attract specialist skills to the UK, but rather the opposite.
Entrepreneurs who are not able to determine their own employment status, and who could be forced onto a PAYE system are likely to run as fast as they can from the UK. Who could blame them?
Brexit is apparently the reason why the date for the Autumn Budget had been delayed, as there are further Brexit negotiations to be held in November, which will undoubtedly affect how much Philip Hammond will be able to achieve. It is therefore unlikely that despite this being the first Autumn Budget in many years, it’s unlikely to be the most ambitious.
The Government may not consider further IR35 reform to be ‘ambitious’ or particularly daring. The message continually purported regarding the necessity for further IR35 reform is that non-compliance with the current IR35 rules is widespread, and that only 10% of people operating a personal service company (PSC), are paying the right amount of tax, whilst the rest are apparently using a limited company as a means of paying less tax.
Additionally, HMRC estimate that non-compliance is expected to reach £1.2bn by 2022/23.
It is important therefore to plan for further reform now. Despite the Government stating that reform will not affect those who are genuinely businesses is simply not true, and even those who feel very confident of their IR35 status could find themselves being challenged by HMRC.
Contractors, agencies and end clients alike should all work together for a common goal; to continue to operate successful businesses whilst ensuring that there is a parity of understanding between all parties. From an agency’s perspective, determining the impact further reform could have in terms of cost would be extremely beneficial, i.e. just how many contractors are likely to fall inside of IR35?