IR35 Reform in the Private Sector - Update
Posted on 5th November 2018 at 08:15
Philip Hammond delivered his Budget last week and yes, it seems the government is intent on bringing the heavily criticised reforms into the Private Sector. But not until April 2020 and only for medium/large companies. So, what does this all mean?
Bonfire night and fireworks seems quite appropriate for this update – although not a celebration, sparks are certainly flying!
So, what's the news?
“The government has carefully considered all of the responses received and we are now in a position to propose extending rules similar to the April 2017 public sector off-payroll working reform to the private sector. Having listened to concerns, the changes for the private sector will be introduced from April 2020 for medium-sized and large businesses only.” - Philip Hammond, Chancellor
As contractor and IR35 specialists we follow all IR35 cases and updates closely and keep our clients updated. However, we always try to avoid scaremongering and sensational headlines to bring you a realistic, reasoned and pragmatic view.
As a reminder, if for any reason you haven’t been keeping up to date, the Autumn Budget 2017 (last year), saw Philip Hammond announce a consultation into reforming IR35 in the Private Sector. The consultation was published several months behind schedule in May 2018 and everyone was invited to put forward their thoughts, and arguments. We of course joined and followed the cause.
It was originally feared that the government would rail-road us into the reforms with a start date of April 2019 giving engagers, end clients, agencies and contractors very little time to prepare. However, although a strong fight across the industry failed in stopping the reform, it has bought us some time. Reforms are now set to be introduced in April 2020 giving us 17 solid months to work with all involved to find the best way forward.
In addition, the reforms will only impact medium and large companies engaging contractors – excluding small businesses from this admin burden.
What we know
1. Reform will be effective from 6 April 2020
2. Reform will only impact contractors engaged by a medium/large client.
The criteria for determining if a business is medium/large is set to follow the Companies Act 2006 definition, being where two of the following conditions are met:
- Net Turnover over £10.2 million
- Net Assets over £5.1 million
- More than 50 employees
3. Reform does not change the IR35 rules, just who is responsible for determining a contractor’s IR35 status.
At the moment, it is the contractors responsibility to decide if their contracts falls inside or outside of IR35. From 6 April 2020, if their client is medium/large, it will be the client’s responsibility.
A further consultation will be carried out to refine the reform and most likely make some tweaks to the already introduced Public Sector reforms. This is expected to be released in Summer 2019. Until then, some of the detail remains unknown.
We are however informed that the legislation will not be applied retrospectively and that changes in IR35 status under the same client will not automatically trigger an IR35 enquiry.
There is no doubt that this is not good news, but it is also something we knew was coming, just not necessarily when it would hit.
The damage the reforms caused in the Public Sector are well documented and I believe that this is due to four key points.
Firstly, the reforms were rushed through giving the Public Sector little or no time to prepare.
Secondly, the Public Sector, in their haste to meet their responsibilities, opted for “blanket assessments” forcing whole groups of workers inside IR35. They did not adhere to the legislation in carrying out an assessment on a worker-by-worker basis. This is one of the over-riding points picked up in the consultation published in the summer.
Thirdly, the Public Sector wouldn’t have the knowledge or indeed funds available to employ specialists to gain the knowledge needed to carry out fair assessments.
And finally, the Public Sector, are, by its very nature, more risk adverse.
On this basis, if we look at the situation pragmatically and with a commercial mindset, the impact in the Private Sector has every chance, and in my opinion, will, be very different.
The medium/large companies that the reforms force this responsibilities on have nothing to gain by carrying out blanket assessments and forcing its entire flexible workforce into IR35 or into permanent positions.
By working with IR35 specialists and engaging their assistance with understanding IR35, looking at their contracts, working practices and assignments, these engagers can not only keep its flexible workforce, but also ensure key projects go ahead as planned.
Engagers that act now to prepare themselves and work hard to understand the legislation and how to put it in place will put themselves into a strong position and have the competitive edge and ultimately attract the best talent.
Please don’t panic.
As we all know, with any legislation, the devil is in the detail – and we won’t have that until next Summer.
We also have a small, tiny thing called “Brexit” to contend with and depending on the outcome, this is all subject to change. After all, Philip Hammond’s opening speech made it clear that a revised or updated Budget may be needed once the Brexit plans were finalised – this to me, seems very likely!
Keep up to date
Follow our IR35 News blog.
Sign-up for email notifications.
Book a call to discuss your concerns and arrange a contract review or why not arrange a face-to-face? You are always welcome at our office in Milton Keynes.
Make hay while the sun shines
Finally – take the positive – the changes are not planned to come in for another 17 months. That’s another 17 months you can continue to contract and bring in your daily rate!
Nicola J Sorrell -
Founder | Xero Champion | IR35 Expert
Share this post: