Hot on the heels of losing an IR35 case through the First Tier Tribunal, HMRC have published a consultation on off-payroll working in the private sector which has been anticipated since the Autumn Budget.
In an extension to the rules introduced in April 2017 for the public sector, HMRC are now looking to tackle non-compliance with IR35 in the private sector. This consultation outlines some of the main options being considered for tackling non-compliance in the private sector along with a review of the effectiveness of public sector roll out.
With the number of small companies (1-2 directors) rising from 250,000 in 2000 to over 1 million in 2015, under the current rules HMRC believe a third of people operating as a PSC should be operating as inside IR35, with only 10% of this group correctly applying the legislation
The cost of non-compliance in the private sector has been projected by HMRC to be £700 million in 2017/18, rising to £1.2 billion by 2022/23. Along with the cost, HMRC are looking to reduce the challenges they face when carrying our IR35 enquiries.
By HMRC’s assessment, the public sector reform has been successful both in increasing tax compliance and resolving compliance challenges faced in enforcing the off-payroll working rules in the public sector. As an indication of this:
However, independent research commissioned by HMRC to address the many concerns raised does highlight the challenges public sector bodies faced, with the introduction of the reform increasing initial admin burdens, costs and struggles of being unfamiliar with the legislation. HMRC do acknowledge that ‘public authorities would have preferred more time to prepare and adapt’ to the public-sector reforms and ask for feedback on how these areas could be improved in a roll out to the private sector.
The consultation provides three potential options as well as asking for other suggestions:
Other options such as a flat-rate withholding tax or a minimum length of engagement have been ruled as ‘out of the scope’ and therefore aren’t being considered in this consultation. This consultation focuses only on the enforcement of the current IR35 rules whereas these other options would fundamentally change the rules behind IR35 according to HMRC.
A proposed date hasn’t been given for the private sector reform but with the consultation running up to 10th August 2018 and with HMRC taking several months to respond, along with the Autumn Budget being in late November, it’s not certain whether the changes will be rolled out for April 2019 or for a later date.
We’ll be looking into the consultation, along with any further information published by HMRC, on an on-going basis.
We’ll also shortly be posting further updates & information to let you know what we’re doing and what you can do too.
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