What could be next for IR35 in the private sector?

Our CEO & Founder Luke Desmond attended an update event for IR35 on Friday hosted by the FCSA. HMRC were present to talk about how the public sector off-payroll rules (IR35) have worked so far and about the consultation that will now take place to discuss extending these to the public sector.

Public Sector Results

HMRC were keen to stress the success of the public sector changes (read our previous blog post if you aren’t familiar with these) in their eyes. HMRC’s PAYE data suggests that there were an additional 91,000 “employments,” not people as many of these people have multiple employments at once (HMRC’s words, not ours!), for just the first quarter of this tax year! This was as a result of a significant increase in compliance in HMRC’s opinion, this alone was the main argument for success.

HMRC were keen to stress that, despite plenty of media attention, there has been no evidence of mass walkouts or a significant loss of contractors from the public sector. The key word here is “mass” as they do accept instances of contractors leaving, but put into perspective against the total number of contractors in the public sector HMRC see this as a very small and insignificant number.

Around half of the contractors working in central Government are now determined to be inside IR35. HMRC have also seen a large number of contractors move over to Umbrella companies.


Non-Compliant Schemes

As a result of these changes in the public sector, HMRC did acknowledge that they have seen a rise in the number of non-compliance tax avoidance schemes being aimed at contractors and agencies.

They stressed that these schemes do not work and they are allocating a lot more resources to closing these schemes down. They also confirmed that they already have schemes under enquiry and others in their sights so beware! Contractors & agencies can often be the ones liable for the tax, penalties, and interest when these schemes fail.

In HMRC’s own words, schemes that offer take homes above 80% are often too good to be true!


Check Employment Status for Tax (CEST)

The renamed CEST tool is the online tool launched by HMRC to help contractors and public sector bodies determine their employment status.

This tool has been used over 450,000 times and in 85% of these cases, it has been able to provide the user with a clear result. This tool is clearly being used significantly more than the previous ESI tool it replaced.

HMRC push this tool as a great success and despite many contradictory opinions, they are confident that it is based upon case law.

When questioned on a breakdown of these numbers, particularly the number of outside vs inside results, HMRC’s response was that they were unable to get this data from the tool due to the way it has been built.


Private Sector Consultation

The headline figure here from HMRC was they believe the total cost of non-compliance to be £1.2bn by 2024/5!

HMRC were able to provide a little clarification around how and when they will consult on rolling these rules out to the private sector as per the recent budget announcement.

They intend to proceed "carefully" and use an evidence-based approach. They are awaiting results of the independent research they commissioned to talk to public sector bodies about how the changes impacted them. These results are expected in early January, after which they plan to issue the consultation document.

The consultation will be open for 12 weeks, because of this HMRC categorically confirmed that no changes would be implemented for April 2018. After a 12 week consultation and 2-3 months for HMRC to issue a response it would put us around the Autumn budget 2018 and there would be nothing to stop them implementing any potential changes effective from April 2019.


Our View

Luke Desmond gave us a snippet of his current thoughts on the subject: “Despite the obvious negative situation we find ourselves in, it was helpful to get a little bit of clarification on the next steps and potential timing. It was reassuring to hear HMRC talk in length about tackling the increasing use of non-compliant tax avoidance schemes, as a company who have and will only ever offer completely compliant solutions it will be great to have everyone on a level playing field.”

You can read Luke’s full opinion article over on LinkedIn here.


It is important to point out that although the above information was provided by two HMRC employees actively involved in IR35 changes, none of it was an official published response. The fact that it was provided verbally means that we need to take it with a pinch of salt!


As we did with the public sector consultation we will look to get actively involved in this consultation and ensure our contractor’s voice is well heard.

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