Contractors in the private sector could grasp a glimmer of hope that the draconian IR35 reforms that have plagued the public sector could be delayed until at least 2020, after the Chancellor’s Spring Statement provided no updates on the Government proposals.
All signs from HMRC had pointed towards an extension of the public sector reforms arriving as soon as April 2019, with many expecting an announcement and further documents regarding the IR35 consultation to be delivered within this afternoon’s Statement.
But according to section 1.4 of policy paper detailing the new Budget timetable, Government is running out of time if it is to legislate change in April 2019. Realistically, a consultation needs to be launched within a matter of weeks to guarantee enough time for full consideration.
What has caused delays to publication of the IR35 consultation?
Despite HMRC’s apparent indifference to the plight of the public sector, the Spring Statement omission suggests that lobbying efforts by contractors and contracting stakeholders may have yielded some reward.
These lobbying efforts have been championed by ContractorCalculator, alongside the likes of the Association of Independent Professionals and the Self Employed (IPSE), the Freelancer and Contractor Services Association (FCSA), and ChangeIR35.
There are also issues with HMRC’s Check Employment Status for Tax (CEST) tool which first need addressing. The taxman conceded in a December 2017 IR35 Forum meeting that CEST fails to consider mutuality of obligation (MOO), which is one of the key tests of employment.
HMRC also announced that it would publish a response to the challenges to the legitimacy of CEST in January 2018. This response is still forthcoming, with a recent freedom of information (FOI) request by ContractorCalculator revealing that HMRC’s response is now due to be released alongside the minutes from the February 2018 IR35 Forum.
“CEST is central to HMRC’s entire strategy concerning these reforms, so it needs to resolve not only the problems with MOO but also the underlying flaw that it cannot predict the correct answers to many of the existing IR35 court cases,” says ContractorCalculator CEO Dave Chaplin. “CEST is currently unfit for purpose. If HMRC’s means of IR35 assessment doesn’t align with the law, it can’t possibly consider rolling the reforms into the private sector.”
Will Government research reveal the true effects of IR35?
Although HMRC maintains that the public sector reforms have proven successful, initial research will likely have painted a far different picture. In an FOI response to Chris James, head of accounting operations at JSA Group, Financial Secretary to the Treasury Mel Stride stated:
“It is important for us to base our assessment of the public sector reforms on rigorous evidence. The research we have commissioned was undertaken within the professional standards set our under the Government Social Research (GSR) Code, to ensure it is both impartial and high quality.”
Providing Government has followed through with this promise, its findings may begin to replicate those of several independent studies, which have attributed the following to the public sector reforms:
- Rising costs for public sector projects to ensure retention of key contractors
- Cancellations of, and delays to, projects, due to wholesale walkouts by contractors
- Hirers resorting to making unlawful blanket decisions regarding IR35 status.
The changes have also seen a widespread move to tax avoidance and tax evasion schemes by some contingent staff who have been unable to secure a fair IR35 assessment, particularly locum nurses adopting offshore loan based schemes.
“HMRC has ignored independent research from ourselves and other contracting stakeholders, but a thorough, unbiased report would surely uncover the same findings. In which case, I can’t see how Government could proceed with plans to fast-track these changes,” says Chaplin.
Contractors urged to continue fighting IR35
“Whilst I believe that an April 2019 rollout is firmly on HMRC’s agenda, and HMRC has demonstrated an unwillingness to listen to arguments from stakeholders, it’s the MPs who make the decisions, and our voices are beginning to be heard at Westminster,” notes Chaplin.
“At this stage, it’s a coin toss as to when it all happens. Let’s first see what the Government’s research says. If it’s a smokescreen that fails to recognise the adverse consequences of the reforms, the Government’s intentions will be clear.”
Martyn Valentine of The Law Place, a firm that specialises in employment status law, commented on the timings. “If HMRC want an April 2019 roll-out then they need to hurry up and publish their consultation in order for a proper consultation to take place. Given the adverse consequences of the reforms in the public sector common sense dictates they should really delay the whole thing until at least 2020 in order for the research they have commissioned to provide a complete picture.”
This latest development demonstrates that the battle against IR35 far from over, but in order to overcome the proposed reforms, we need the full support of the contract sector. To get involved, sign up to ContractorCalculator, and follow or connect with our CEO Dave Chaplin on LinkedIn for updates on our IR35 campaign.