It was not a decision that many found surprising, but the majority welcomed the chancellor’s decision to delay this measure until April 2020.
There has been something of a widespread relief following on from Philip Hammond’s decision delay the introduction of IR35 status in the private sector until April 2020.
Although Chris Sanger, EY’s head of tax policy, has stated that it was “a move that surprised few” in the industry when “the chancellor confirmed that he would go ahead with the extension of off-payroll workers rules to the private sector,” it has been highlighted by several firms that government focus now needs to be on making a success of the IR35 rollout in the public sector. Up until now, this has been far from a success.
“What is concerning is that the consultation this move is based on is too narrow in scope, ruling out some previous options that had real merits,” Nigel Morris, employment tax director at MHA MacIntyre Hudson said. “The government needs to be open minded in how it delivers continued IR35 reform; the public sector rollout has not gone smoothly, and it is important these lessons are taken on board.”
Brian Palmer – a tax policy expert working with AAT – has echoed this analysis. He said: “The delay to new rules determining IR35 status in the private sector to April 2020 will be widely welcomed by accountants and other tax professionals. With there being no evidence to date that ‘off-payroll’ rules have worked in the public sector last year, it’s clear more work needs to be done to truly define those taxed as employees from those taxed on a self-employed basis, and to allow private sector businesses adequate time to prepare.”
Sanger explained that the IR35 measure, “at over £1bn, raises more in one year than any other measure in the Budget, and it will be important for the government to use the period between now and April 2020 to address the problems that are present in the current scheme that applies to the public sector.”
“Without this, there is a strong risk that the implementation will be problematic and potentially undermine the availability of the UK’s flexible workforce,” the head of tax policy at EY warned.
Morris added: “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.”
The delay has given businesses time to come to terms with more pressing industry changes, such as those that will undoubtedly be wrought by Brexit.
“We welcome the move to delay implementation until April 2020, and to limit it to large and medium-sized businesses,” Morris continued. “We could not see the private sector or HMRC being ready to implement the changes next year. The change of plan also reduces what would have been an unnecessary burden on small businesses.”
James Hender, head of the private wealth group at Saffery Champness, has identified the importance of the government needing “to strike a careful balance between protecting employment rights whilst providing the flexibility required to drive productivity in a dynamic economy.”
The delay is entirely necessary, in order to tackle challenges that are standing in the way of readying businesses for IR35.
Mark Groom, employment tax partner at Deloitte, has outlined the three biggest perceived challenges that businesses will face in this area over the next two years.
He said: “Firstly, determining the correct employment status for any worker; secondly, dealing with disputed status assessments; and finally, implementing significant changes to systems, contracts, and commercial negotiations over day rates.
“Some businesses have already started forming their project plans. Those who have not yet done so should not underestimate the work involved to ensure they are ready to go live by April 2020.”
It will be interesting to see what further action the government will take in the next two years to iron out the current issues IR35 is causing before its implantation into the private sector.