Government begins review of IR35 scheme in the private sector

The Government has followed through on its election pledge to review the implementation of IR35 in the private sector.

The rules govern off-payroll working and are due to be extended to private employers in April, with the aim of collecting up to £3bn in extra taxes.

However, IR35 has had a controversial history in the public sector, where it has been linked to higher costs, staff shortages and confusion.

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Scope of the review

Hopes that the Government review could mean changes – or a delay – to the scheme seem unfounded.

The wording of the announcement suggests a quick examination of the way the scheme will be brought in, rather than whether it needs to be changed.

A Treasury statement says: “The review will determine if any further steps can be taken to ensure the smooth and successful implementation of the reforms, which are due to come into force in April 2020.”

AAT reaction

Brian Palmer, AAT tax policy expert for AAT, said:

“Given all that has happened on the Brexit front during the last twelve months, it is a more than a little disappointing that the Government has not taken the opportunity to press pause on the introduction of IR35 to the private sector, in order to ease the ever-increasing compliance burden born by UK businesses at this very challenging time.

“AAT has consistently observed IR35 should only be rolled out to the private sector after allowing businesses sufficient time to adequately prepare for such a change and to ensure that software companies also have time to build the required handling changes into their payroll/contractor payment processing products. Given the problems faced over IR35 in the public sector, our message remains not to rush this in.”

 “However, it doesn’t come as a complete shock that the projected £3bn boost to the public purse in extra tax revenue over a four year period has proved too big a temptation to the Government, who seem determined to carry on regardless.

What business should do

While it is unclear what could come out of the review, one strong possibility is a publicity campaign to raise awareness, backed by training and resources.

It is also possible there could be a ‘soft-landing’ period as for the introduction of Making Tax Digital for VAT, during which time HMRC could be less stringent. However, some experts have told AAT they don’t expect this and that it would be a dangerous outcome to rely on.

The best advice to businesses and agents is therefore to continue preparations for the scheme’s introduction, including reviewing all arrangements for all off-payroll workers on an individual basis.

More guidance on IR35 is available from HMRC here.

AAT resources

• Preparing for IR35 in the private sector
• IR35 technical guide – to be published in February

Read more about IR35 here:

• How IR35 could raise costs for private employers
• How IR35 sent public sector bodies off the rails
• Does IR35 fly in the face of the gig economy?

David Nunn is Content Manager at AAT.