Our Position on Compliance with IR35 in the Private Sector

On Friday last week, we submitted our response to the government’s consultation on compliance with IR35 in the private sector. Our response is the culmination of months of engagement with members, business bodies, government and other stakeholders. Member input through our webinars, surveys and sector meetings was invaluable in helping to put forward the potential impact of the recruitment industry.

The government has an opportunity with this consultation to learn from the public sector experience. In our response, we urged the government to adopt an approach to any private sector reform that allows businesses adequate time to prepare, resolves the issues with the IR35 legislation and reduces the administrative costs and burden to business. We also urge the government to consider alternatives. Since IR35 was introduced in 2000 we have stressed that a long-term approach to tax and employment status is needed rather than tweaks to IR35 as this inevitably leads to more issues.

The last thing private sector businesses need at this time are rushed or poorly designed reforms that could hamper productivity and have wider economic ramifications. This is particularly the case for SME recruiters and other small businesses who will struggle to deal with changes. With Brexit approaching and ongoing uncertainty impacting business confidence, the government cannot afford to introduce reforms which risk damaging the flexibility of the labour market.

We recommend:

1. Conduct a comprehensive impact assessment of the public sector reform and an analysis of the impact changes could have on the private sector. This impact assessment must cover the full tax compliance cycle which only concludes in January 2019. The evidence presented to date on the impact of the public sector changes has been limited in scope. IFF Research did not consult with REC, our members or the contractor community as part of the research they carried out for HMRC in 2017.

2. Allow the government’s consultations following the Matthew Taylor review to run their course. We await the government’s response to the recent consultation on employment status. As the government’s response and ultimate proposal could have potentially far reaching consequences on tax and employment status, we believe it would be premature to proceed with changes to IR35 in the private sector without any employment status changes being properly considered. This would also allow time for alternatives to IR35 to be considered. A better approach is needed.

3. Allow businesses sufficient time to prepare for any changes. April 2019 would be far too soon to introduce changes to IR35 in the private sector. This needs to be taken off the table. The research commissioned by HMRC acknowledges that public authorities would have benefited from more time to prepare for the public sector changes.

4. Resolve issues with the public sector reform rather than replicate these in the private sector. There are ongoing issues with the public sector reform which need to be rectified before any changes can be implemented in the private sector. The government risks damaging private sector productivity if it does not address those issues.

5. Liability must rest with the end user client rather than the agency (where it is the fee-payer) and the end user must be responsible for the compliance of its supply chain. It cannot be right that the end-client makes a decision which the agency / fee-payer is wholly liable for - except in very limited circumstances where the end-client fails to take reasonable care in making its decision or fails to respond to a request for an explanation.

We will continue to put forward our industry’s messages to the government. Our focus now shifts to the Autumn budget where we will most likely hear more about the government’s plans. Our industry’s concerns about IR35 will be a key part of our pre-budget submissions. We will continue to keep members updated and ensure that you are supported should any changes be introduced in April 2019. If you have any questions, please contact policy@rec.uk.com