Is it too early for IR35 to be rolled out to the private sector?


Ahead of tomorrow’s close of HMRC’s consultation on IR35 in the private sector, Harvey Nash Recruitment Solutions explain to Recruitment Grapevine the potential consequences if the legislation is extended…

IR35, the counter tax avoidance legislation active from 2000, seems to be on the tip of everyone’s tongue at the moment. In April 2017, HMRC reformed the legislation, introducing it into the public sector.

Since then, HMRC have faced heavy criticism regarding the extension of this legislation, with several studies condemning the chaos that IR35, and its online tool CEST has created. In 2018 so far, four significant cases have been made against HMRC and the controversial legislation, involving various public sector organisations, including the BBC and presenter Christa Ackroyd.

Last month, HMRC announced that they had begun to make plans to introduce IR35 legislation into the private sector. With the evident criticism against this move, this announcement has caused concern among contractors engaged with private sector organisations.

This brings into question whether it is too early to extend such controversial legislation to the private sector. Recently, Harvey Nash Recruitment Solutions conducted a survey across contractors and found that 80% believed that IR35 had been negative on the public sector. Almost half (49%) of those surveyed reported that they now only sought contracts within the private sector.

It must be questioned whether HMRC should withhold their plans to extend IR35 to the private sector, in order to resolve these issues. HMRC have attempted to counter this criticism, with IFF Research producing a report on behalf of the taxman in 2018, which argued that IR35 had had “minimal impact” on the public sector and its recruitment processes.

However, in a recent case taken by Jensal Software Limited against HMRC, Judge Jennifer Dean found that the company was not guilty of tax avoidance, portraying how IR35 legislation and its guidelines were too “blurry” to police within the public sector at this present time.

These criticisms support the findings of our report, which reveals how IR35 legislation is impacting negatively on innovation and productivity, reducing the contractor talent pool, increasing fees and, in some cases, resulting in major project delays.

With the Government’s consultation on private sector IR35 legislation underway it will be more important than ever for private sector organisations and their two million contractors to make their voices heard.

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