Budget 2018: IR35 approach needs a rethink
As expected, Philip Hammond has announced a further crackdown on people providing services through Personal Service Companies (PSC).
The move, targeted at people who have set themselves up as private companies to take on work, has been taken because ‘direct’ employees pay higher levels of National Insurance compared with the self-employed.
As had been widely forecast, the move, which brings private sector engagements into line with those in the public sector, will come into effect from April 2020. However, the change will only effect contracts between PSCs and medium and large-sized businesses with the Government claiming that 1.5 million smaller businesses will remain unaffected by the reforms.
Reform of the IR35 rules is seen as a less politically controversial way to raise money for the Treasury, in the absence of Parliamentary support for an increase in National Insurance Contributions (NIC) from the self-employed.
What is concerning is that the consultation on which this move is based asked for respondents to make the case for an alternative that was restricted, and which specifically cited four previous options as being out of scope of the consultation, even though some have real merit.
We welcome the move to delay the implementation until April 2020, as we could never see either the private sector or HMRC would be in a position to implement this. We also welcome the confirmation from HMRC that there will be no targeted campaigns to examine PSCs for years prior to the introduction of the new rules, though we do note that this commitment appears only to go as far as saying that there would be no automatic triggering of such enquiries.
We would still urge HMRC and the Treasury to revisit the proposed arrangements and potential alternatives to learn from issues from the Public Sector roll out and to evaluate other options that would create less burden on business and produce a fair result when comparing the tax and NIC suffered by both the employed and the self-employed.
In particular, the Government should look closely at:
- The use and accuracy of HMRC’s Check Employment Status for Tax (CEST) tool
- The effect on the engagement and availability of required skills to the Public Sector following the introduction of similar legislation to that sector in 2017
- Any reports received in relation to the introduction of ‘arrangements’ in order to avoid IR35 as a result of these changes and look closely at any additional areas of avoidance this has created.
Find out more
This Insight is part of exclusive content being provided by our experts on the Autumn Budget. View our special Autumn Budget 2018 coverage to read more commentary and analysis to help your business. Alternatively, send us an online enquiry to contact one of our business experts or speak to our Employment Tax Director, Nigel Morris.