The BBC has reported that it believes the IR35 public sector rules are to be extended to the private sector in the budget later this month. Anyone who has followed the path of this controversial tax proposal will not be taken by surprise.
Clearly the timing of implementation will be important. Despite some speculation that the measure will be delayed until April 2020, there is an obvious possibility that it could apply as early as April 2019. The logic for the earlier date is as follows. Addressing “tax avoidance” has wide support across all parties. There is a need for the Treasury to raise funds, and the Treasury believes that the public sector rules have raised significant amounts of tax that otherwise would have been avoided. There is no election on the cards which could potentially upset the applecart. Even if the Brexit situation forces an election as mooted by some, why would the measure be abandoned by any incoming government? So why delay?
There is a plethora of arguments against an extension to the rules as suggested, let alone early extension. Without rehearsing all of them, many of us would argue that the public sector rules apply unfairly in practice and impose an onerous burden on hirers, agencies and contractors alike. At the same time there is a recognition that there should be some reform of contractor tax, but is the extension of the public sector rules the way to go? Most outside of government would say not. The Association of Recruitment Consultancies, of which I am Chair, would like to see the rules, and principles of CEST online tool, back before the Treasury Select Committee, picking up on some serious criticisms where they were left off when the public sector rules were imposed. However we must wait and see.
Regardless, those likely to be affected should take steps to understand and deal with the consequences. There is no doubt that if the extension takes place there will be a likely shift of contractors to the umbrella sector, and relationships and relevant contracts will need to change. The combination of new IR35 rules and a greater dependence on service providers threaten to expose the unwitting to tax risk and AWR claims (see the recent Winchester case) amongst other things – a multiple source of risk for contractor agencies and hirers going forwards.
So barring an unlikely U-turn between now and the budget, an extension of the public sector rules is just around the corner. It’s best to be prepared. As we always say, better the fence at the top of the cliff than the ambulance at the foot.
Author: Adrian Marlowe, Managing Director
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