IR35, April 2020 and the private sector reform
Finally, after a long period of if's and but's around the IR35 reform in the public sector, Philip Hammond announced in his Budget speech that the IR35 reform will indeed, as expected by many, be rolled out into the private sector.
Larsen Howie, the IR35 Review specialists talk you through their take on the Autumn Budget statement, in particular - the IR35 reform.
Whilst this could be viewed as unfortunate news for contractors working on engagements in the private sector, one slither of hope is that the changes are not due to take effect until April 2020, and then - only to contracts where the end client is a “medium or large business”.
The Chancellor further confirmed in his speech that the planned reforms which will be rolled out to the private sector will mirror the public sector – which itself underwent reform in April 2017. The basic logic of having one set of rules rather than two running side by side is sound, but further questions are yet to be answered as the controversial move goes against professional and marketplace advice.
What can we expect in April 2020?
The Chancellor stated that private sector IR35 changes will be applicable to all businesses except “the smallest 1.5m”. As defined by the Companies Act 2006, a “medium or large business” is as follows:
Companies Act 2006, c.46, Part 15,
(3) The qualifying conditions are met by a company in a year in which it satisfies two or more of the following requirements—
1) Turnover (not more than £10.2m)
2) Balance Sheet Total (not more than £5.1m)
3) Number of Employees (not more than 50s)”
Making approximately 1.5 million small businesses exempt from the IR35 changes leaves room for uncertainty throughout the supply chain.
The public sector changes caused unrest and a risk-averse approach from businesses making IR35 decisions with little to no training on IR35. In the build-up to April 2020, in order to avoid the same behaviour, providers like us are able to help educate and assist with IR35. To determine IR35 status as a contractor, via our range of IR35 contract review offerings.
Educate and upskill on IR35
Without playing a guessing game, evidence would suggest that blanket assessments are likely to become more common. We don’t believe that the changes announced in the recent budget will increase IR35 compliance in the private sector, as expected by HMRC. Whilst compliance can always improve and is, without doubt, a good thing, it needs to be done fairly and proportionally.
The working practices for each contractor vary and it is this that HMRC places great reliance upon proving. Risk-averse, blanket inside IR35 decisions cannot be allowed to be made, and each determination must be made on its own facts and merits. The public sector is its own judge, jury and executioner, but the private sector will be a different animal to deal with.
As a means of avoiding the reform, you may find emerging firms promising contactors 85% plus take home pay. As always, if it sounds too good to be true, it will be, and whilst the short-term gain is great, the long-term won’t be so rosy. We encourage contractors to stay away from anything of this nature - HMRC has form in aggressively taking retrospective action on anything they consider illegal.
In terms of what HMRC are doing to prepare, well they have confirmed that they will continue to work with organisations to improve their Check Employment Status Test tool (CEST). Sounds great, but for a system that is acknowledged to omit MOO (Mutuality Of Obligation) because it “is deemed present in every contract” (a point HMRC have constantly been beaten on in tribunals), cannot be relied upon. Experts including Larsen Howie raise serious doubts over the technology’s accuracy and legitimacy which is placing contractors inside of IR35. This makes taking an alternate view on your IR35 status imperative.
The conclusion – don’t wait. Educate and upskill on IR35, understand your position, who and where the financial liabilities rest for an incorrect determination, and make sure the supply chain knows this too.
For more information on IR35, get in touch with Gorilla Accounting who will put you in touch with us. We offer a discounted service to all clients of Gorilla Accounting. If you have any questions, please use our contact form or call 0330 024 0406.