To say that the public sector roll-out of IR35 has been rocky would be an understatement. Following the announcement of its implementation, everyone from the business leaders and MPs have voiced their concerns and HMRC has faced numerous court battles from contractors. Because of this, the introduction of IR35 to the private sector has been delayed to 2020 to give businesses and the government enough time to address challenges and allay concerns. But some believe that this is too little, too late.
A 50 per cent success rate
77 per cent of contractors feel that the private sector will not be prepared to handle IR35 cases by the 2020 deadline. 30 per cent feel that the Government’s system will not be ready for the private sector roll-out.
Some of these concerns come from the perceived failure of HMRC’s employment status tool. It has formed a key part of decision-making around contractors’ employment in the public sector. However, many consider it to be inaccurate and a blanket solution that cannot fully consider the many differences in contractor roles. Currently, HMRC only has a 50 per cent success rate for IR35 tax cases.
This will be exacerbated when the private sector comes on-board, as the differences between contractor roles across businesses are more numerous and pronounced.
A burden on companies
Plus, there is a burden placed on recruitment agencies and employers. Private sector organisations will be responsible for managing IR35 status, so will assess whether their contractors should be subject to the regulation. Those with complex supply chains will be at a significant disadvantage. An end-employer’s decision on employment status must be passed throughout the supply chain to reach the contractor.
The employer will also be ultimately liable for non-compliance. If a contractor cannot pay their tax dues under IR35, the bill may end up on a business’ doorstep.
This could lead companies to hire more off-shore workers who are less of a tax risk. Or, they could relocate outside of the UK permanently – a prediction made more likely due to Brexit. As CEO of Contractor Calculator, Dave Chaplin warns, “The off-payroll rules impose a significant barrier to business growth and a threat to the future prosperity of the UK economy. This legislation effectively raises a sign to entrepreneurs saying ‘do not start a company here’.”
IR35, therefore, will make private businesses less flexible and competitive at a time when they need it most. Organisations will need flexible workforces to adapt to downturns in the market and compete on a global scale. In a recent Government debate, MPs called for the private sector introduction to be delayed further, to post 2020 when the economic implications for Brexit are better understood.
For now, private companies can watch for developments occurring in Parliament around IR35. As pressure piles on the Government from MPs across all parties, there is little certainty over what IR35 will look like for the sector and when it will come about.
To further strengthen their position, private businesses can audit their current workforce. Building relationships with contractors is vital, as these will be tested post-IR35. Especially if contractors experience cash flow issues due to an employer’s decision. Whilst the Government debates the future of IR35, businesses will futureproof their workforces by keeping abreast of proceedings and preparing their contractors for every eventuality.