Off-payroll reform: private sector should prepare for change

Brian Rudkin

Brian Rudkin

Director and Head of Employer Services

The outcome of HMRC's consultation on off-payroll working in the private sector is widely anticipated. IR35 legislation has always been controversial, but this consultation has raised the level of debate.  

Much of this interest is driven by the widespread concerns of the many thousands of businesses that will be affected if the government pushes ahead with these changes. It's not change itself that is feared - because change is inevitable in the world of taxation. It's the fact that many changes in the law could be rushed through, ending up inadequate or not fit-for-purpose in the evolving world of flexible working and the “gig economy”.

It is not difficult to understand why many have concerns - we only have to look at how the changes to the off-payroll worker rules in the public sector turned out in April 2017. Whilst HMRC argues that shifting the onus to define contractors’ employment status onto public sector organisations has made the tax system fairer for all involved, the difficulties faced by many in the public sector because of these changes indicate that this is not the complete story. Difficulties ranging from lack of time to prepare, lack of support, inadequate technology, incorrect grouping of workers and complexities around the PAYE and NIC deductions were all too commonplace; much of which is still ongoing in the sector.

The big question seems to be not IF these new rules will be introduced but WHEN and the timing of any legislative change will be crucial. In our consultation response we recommend a delayed implementation period for the private sector, to allow all parties enough time to adequately prepare, and for HMRC to run a comprehensive information campaign across multiple communication channels.

This delayed implementation period will be crucial for certain sectors such as oil and gas and financial services, where contractors are used extensively to meet fluctuating resource demands. Businesses operating in these sectors need sufficient time to identify and understand the make-up of their contractor population and to adequately plan for the financial and operational impact that a change in tax law will have on the business. This was one of the main challenges faced by engaging organisations in the public sector last year where contractors were commonly engaged by many different departments with no one person having oversight or responsibility for these arrangements.

Of course, the off-payroll worker consultation is only one part of the equation in the government’s broader agenda for fair work practices. The issue of employment status is very much a moveable feast for those contractors operating outside of Personal Service Companies or other structures, and the employment law position on ‘worker’ status is also something that engaging businesses cannot ignore in light of the recent and ongoing high-profile cases on this issue and potential future changes to employment laws.

Whatever the outcome of this latest consultation, private sector employers that rely on contractors should be considering now how they currently use contractors, the make-up of their contractor population and how the proposed tax changes could impact their business. We know from working with clients during changes to the public sector rules that the more that can be done to prepare in advance, the better.

Our Employer Services team have extensive experience in this area. If you are a private sector employer and are concerned about how IR35 legislation might affect your business, please get in touch.