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After IR35 reform was introduced in the public sector in 2017 and private sector changes were recently confirmed for 2020, contractors have started to wonder how the government is going to support the self-employed.
There continues to be a lot of opposition to the IR35 reforms, and not just from contractors. Leading associations such as IPSE and APSCo have both made their feelings clear, with questions asked about whether HMRC is listening to these representative bodies.
However, the release of the notes taken from November’s IR35 Forum, which was held after the announcement that reform will be introduced in the private sector, did show signs of progress.
The meeting, which is held regularly and gives a number of industry experts, including IPSE, FSCA and The CBI, the opportunity to discuss the legislation with HMRC, indicated that the government is listening. Optimists might even argue that HMRC is shifting towards understanding the mistakes made when rolling out public sector changes.
Whatever the reason for this development, some things emerged from the meeting which give cause for hope:
The concern of whether private sector companies will have the ability to comply with incoming IR35 responsibilities by April 2020 is now accepted by HMRC as a reality.
There’s no indication that reform will be delayed further, but the fact the government acknowledged it must “provide support and guidance to help businesses implement the off-payroll working rules and ensure the guidance is appropriate” will be welcomed by contractors. What matters is that HMRC is committed to providing this support soon if the private sector is to be ready by next year.
The Forum minutes also emphasised HMRC’s belief that by making small companies exempt from private sector changes, with reform only applying to medium and large businesses, the private sector will be able to manage them. This is something that many IR35 specialists also agree with.
On the issue of ‘blanket determinations’ (when an engager applies one status to all contractors), HMRC agreed that they are “not in line with the legislation” and made it “clear that public sector bodies should not do this.” Blanket determinations are not expected to be compliant in the private sector either, when the rules change next year.
Forum members also raised the issue of blanket determinations being confused with decisions made over identical contracts where HMRC do not see it as necessary to “review every individual engagement separately.”
Members were in agreement that it was important for HMRC to document there is a difference between blanket determinations and what are commonly known as role-based decisions.
The debate continues about whether CEST, the technology built by HMRC to help set IR35 status, is reliable. In the Forum minutes, HMRC at least revealed that “meetings with stakeholders to discuss these improvements are already taking place”, before agreeing to share more details about specific plans to enhance the tool.
Forum members said they would like to be involved in discussions regarding CEST and have floated the possibility of holding roundtables with their members. In the past, contractors have made their feelings towards CEST clear, so any serious improvements to the technology will be viewed as progress.
Reform in the public sector has been regarded as a failure, not only by contractors but by industry experts too. Therefore, HMRC is under pressure to implement private sector reform successfully. Thankfully, the Forum minutes showed that the taxman “will build on existing awareness” and “learn” from reform in 2017. Contractors will now expect HMRC to keep this promise.
The Forum minutes also reiterated that findings from the IR35 consultation, which will be released in the coming weeks, are expected to inform HMRC’s specific plans for reform, which it has said will take into account the “public sector experience.”
As part of changes to IR35 in the private sector, HMRC has said it “will not carry out targeted campaigns into earlier years for individuals who are found to be within the rules.” Instead, the focus will be on making sure private sector companies comply with the rules from April 2020.
Following Matthew Taylor’s Review of Modern Working Practices, the government said it would consult on employment status for tax and employment rights. The Forum minutes document that the consideration, which could lead to contractors working inside IR35 receiving employment rights, is ongoing. But HMRC did make it clear that IR35 reform is its priority, arguing “there is an immediate need to tackle private sector non-compliance with the off-payroll rules.”
Judging by the minutes published, HMRC sounds like it’s beginning to understand the importance of collaborating with experts in order to make private sector IR35 reform work. However, only time will tell if the government plans to take on board and implement the advice of the IR35 Forum members.
Keep your eyes on the SJD Accountancy blog in the coming months as we share further information around the 2020 IR35 reforms (likely following the consultation due to be completed in summer 2019). In the meantime, you can find out more about the IR35 legislation by visiting our IR35 resources.
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