Will IR35 off-payroll rules be extended to the private sector?

The Government has published a consultation document which may eventually lead to the extension of the April 2017 public sector IR35 rules to all private sector contractors.

Why has the private sector consultation been published?

Convinced that IR35 has not been successful enough at tackling ‘tax avoidance’ by personal service companies, the Intermediaries Legislation was amended in April 2017 to place the onus of determining IR35 status on to public sector clients, rather than contractors.

Before this change, public sector contractors were responsible for operating IR35, rather than their clients.

The roll-out of the April 2017 amendment has been widely criticised; many public sector bodies were not prepared for the changes, the HMRC employment status test tool (CEST) has been proven to be wildly inaccurate, and some public sector organisations have opted to impose blanket ‘in IR35’ status upon contractors, rather than risk incurring penalties for implementing the new rules incorrectly.

Nevertheless, despite these criticisms, it is clear that this Government is determined to expand its clampdown on IR35 non-compliance by extending the new rules to cover the entire private sector – a far larger target.

According to the consultation document, in 90% of cases in the private sector, the current IR35 rules are applied incorrectly. This latest IR35 change, it states, will help raise up to £1.2bn of taxes by 2023 – which would otherwise be lost by people “getting the rules wrong”.

What are the next steps?

You can access the consultation document, and related research and a factsheet here.

If you want to respond to the publication, you have until 10th August to do so – via email or post. After all responses have been received and digested, the Government will issue its findings, although recent history would suggest that any responses (regardless of merit) may be ignored entirely.

The trouble is, there is little public sympathy for personal service company directors (thanks in no small part to the high profile tax cases involving BBC presenters) – and the hunger for extra Treasury receipts could well prove too much for lawmakers, despite the strong arguments (both legal, and practical) against a private sector extension.

Let’s hope that, for once, the Government reads the responses, and decides against implementing this measure.

About the Editor

  • James Leckie

    James is an experienced business and finance writer. He studied economics and worked for large companies including British Airways, Citi and JP Morgan before working as a data analyst IT contractor in the late 1990s and 2000s. He founded Contract Eye in 2006 and also writes widely for a number of popular business sites. Connect with James on LinkedIn.

IR35 Protection

For ultimate peace of mind and defence in the event of an IR35 investigation, take out Qdos’ award-winning IR35 insurance – from just £99 per year. This covers up to £50,000 of professional representation and potential tax liabilities up to your chosen level of indemnity.

Last updated: 15th June 2019