Autumn Budget 2017: Consultation announced for IR35 private sector roll-out
As part of his speech at today’s Budget, Philip Hammond announced a new consultation into off-payroll working in the private sector.
All of the pre-Budget speculation in contracting circles was about the prospect of Mr Hammond extending April’s IR35 tax avoidance reforms in the public sector to the private sector.
The Association of Independent Professionals and the Self-Employed (IPSE) urged the Government to hold fire on any plans to extend the reforms to the private sector until a “proper impact assessment of how the rules have worked in the public sector”.
Andy Chamberlain, Deputy Director of Policy, IPSE, said: “It seems reckless for the government to be thinking about pushing the same set of rules into the private sector when we know it has been so controversial [in the public sector].”
Issues regarding IR35 reform in the public sector have led to delayed and even cancelled projects and the government has agreed to “carefully consult on how to tackle non-compliance in the private sector” before publishing an external report in 2018.
What do the IR35 public sector reforms entail?
Historically, contractors have been responsible to evaluate their IR35 status for each contract and pay their tax accordingly. However, the new rules, adopted in the public sector since April, require end clients to carry out an IR35 assessment for each contractor used.
If a contractor is supplied to a public sector body by a recruitment agency, the agency is now responsible for paying the contractor’s income tax via Pay As You Earn (PAYE), if they are judged to be within IR35. If a public sector body employs a contractor directly, the body is required to make the necessary tax deductions.
HM Revenue & Customs (HMRC) can target agencies and contractors where tax has been paid outside IR35 but should have been inside. These agencies can be hit with backdated penalties for unpaid tax, including interest unless they can prove they undertook ‘reasonable care’ when assessing the contractor in question.
Last updated: 22nd November 2017