As highlighted in a recent article, the Government is proposing to extend IR35 to medium and large sized businesses in the private sector (i.e. those with 50 or more employees), a change that has been described as potentially “catastrophic for the economy“. The HMRC has now set up a new consultation on this proposal, with a deadline for responses of the 28th May 2019.
Background
A full explanation of what IR35 is, is set out here and here. The Government proposes to extend IR35 to medium and large sized businesses in the private sector with effect from April 2020. However, following the implementation of changes into the public sector on the 6th April 2017, a survey by Harvey Nash Recruitment Solutions of 500 contractors, found that the changes had had a disastrous impact. 80% of the respondents stated that it had had a negative impact on the public sector, 50% noticed a reduction in the number of available contracts, and 42% said that they had had to increase their charges. Moreover, according to the report: "Local authorities responsible for managing social care across the UK are increasingly failing to deliver front line services after the public sector IR35 reforms intensified already acute staff shortages in the sector." This is hardly surprising given that the survey also found that 49% of the contractors decided to only seek opportunities in the private sector, following the changes. Indeed, the changes brought about a mass exodus of IT contractors from the public sector.
Prior to the implementation of the changes to the public sector, it was estimated from research that only 10% of workers were applying IR35 properly. Furthermore, in relation to the BBC, the Digital, Culture, Media and Sport parliamentary commons select committee heard from witnesses that BBC presenters had been "coerced" and "bullied" into forming personal service companies. As a result, around 200 BBC presenters are under investigation by the HMRC, with one presenter being ordered to pay unpaid taxes of over £400,000.00 after being found to be an employee by the High Court, as opposed to a contractor. The National Audit Office found that ultimately around 800 BBC presenters could be required to pay additional tax. BBC Money Box presenter, Paul Lewis, stated in his evidence to the aforementioned select committee, that: "Let me be clear: this isn’t the story of well-paid presenters trading through companies to avoid tax. This is the story of the BBC forcing hundreds of presenters to form companies and treat them as freelancers because it gave the BBC flexibility and ‘protected licence fee payers.'" The chair of the Public Accounts Committee, Meg Hillier MP, stated that some presenters had been left in "desperate circumstances." The BBC have stated that it "recognises there are still issues to address and remain committed to resolving them."
The Consultation On The Proposal To Extend IR35 To The Private Sector
The new consultation is the second to take place on the proposal to extend IR35 to the those businesses with 50 or more employees in the private sector. The deadline for responses is the 28th May 2019.
It is estimated that if the Government extend IR35 to the private sector, then it will have an adverse impact on up to 5.7 million businesses and 2 million contractors. To begin with, the government tool for assessing IR35 status called "Check for Employment Status for Tax" (CEST) remains, in the view of many, completely inaccurate and flawed, with 42% of assessments found to be inaccurate. Indeed, ContractorCalculator, published a report which stated that CEST was "not fit for purpose" and "hopelessly unreliable and biased." Co-author of the report, Philip Manley, a former HMRC inspector, stated: "Unless HMRC can disprove the substantial evidence demonstrating CEST's shortcomings, then it's clear that CEST is not fit for purpose."
Moreover, commenting on the proposal to extend IR35 to the private sector, the Deputy Director of Policy, at the Association of Independent Professionals and the Self-Employed (IPSE), Andy Chamberlain, stated: "This is an astonishingly myopic move. The UK’s greatest competitive advantage is its flexible labour market. This proposal will dramatically restrict that flexibility and starve UK businesses of the freelance talent they need to get work done. Pushing ahead with this during Brexit will hamstring freelancers and their clients when the country needs them most. HMRC has claimed pushing these changes into the public sector generated £550 million, but this is at the cost of far-reaching and serious long-term damage. In the NHS, TfL and right across the public sector, the changes led to mass contractor walkouts, causing disruption, staff shortages and even the cancellation of major projects. Brexit uncertainty has already driven freelancers’ confidence to an all-time low: the last thing they need now is heavy-handed legislation suffocating their sector. IPSE, the CBI and numerous other business bodies have already warned about the dire risks of the reforms – and we will do so again in this consultation. The government should finally open its ears to the experts and scrap the dangerous reforms to IR35 once and for all."
