How can the private sector manage IR35 reform?

17 Aug 2018 By Seb Maley

With extension of the new tax regime near certain, it’s time to start planning how you engage your contractors, says Seb Maley

With the IR35 consultation now closed, contractors and the UK’s 5.7m private sector businesses are anxiously waiting to hear the government’s next move with regards to reform. 

Should the Treasury decide to extend the changes against the best advice of IR35 experts, it is likely that any business engaging a freelancer or contractor will be handed the responsibility of setting the status of the individual. As if that isn’t a big enough burden, these businesses will also carry the liability should HMRC investigate and deem the decision wrong. 

IR35 liability can run into hundreds of thousands of pounds and, given contractors are now a vital resource for businesses of all sizes, these engagers must equip themselves with the skills needed to make accurate IR35 decisions on what would be a huge scale. The fact the government has regularly alluded to the possibility of private sector changes following the public sector rollout makes further reform seem somewhat inevitable. 

So how can HR teams and recruitment agencies manage IR35 reform? First, it is manageable, contrary to speculation, but preparation should start sooner rather than later. And simply, mistakes made in the public sector cannot be made this time around.

Businesses must avoid making blanket decisions and can’t place their entire contractor workforce inside IR35 in an attempt to protect their own liability. This risk-averse approach will simply deter contractors and lead to further non-compliance. Just look at the NHS – it placed all locums and contractors inside IR35 without a fair assessment, and 98 per cent of these independent healthcare professionals are considering seeking work elsewhere as a result.  

When it comes to setting status, businesses should bear in mind that CEST – HMRC’s much-maligned IR35 tool – is not mandatory and independent assessments are perfectly acceptable. The technology has often been criticised for its one-size-fits-all logic and failure to examine the unique details of a working arrangement. In addition to this, 81 per cent of contractors we surveyed said they would be discouraged from working with a client or through an agency should CEST be the sole way of assessing IR35. 

Contractors have clear concerns over engagers’ ability to make well-informed status decisions, which is why businesses would be wise to offer them reassurance. Should these organisations want to retain contractors, and agencies hope to continue placing them, communication with contractors has to start now. 

By letting contractors know that your organisation is proactive and will make accurate IR35 decisions a priority, these widely expected changes will be less disruptive. In short, contractors will have no qualms about working with businesses that give them a fair shot at working outside IR35. 

As you might well know, IR35 is complicated. And it is the legislation’s complexity which can often lead to incorrect decisions. It remains to be seen whether the government will listen to calls to shelve private sector reform, but we might learn more in the budget this November, or possibly even earlier. That said, all the signs point towards a rollout of private sector reform in due course, which simply emphasises the need for businesses to begin preparations. 

Seb Maley is CEO of Qdos Contractor

Executive Director of People and Organisational Development

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