Update: IR35 in the private sector

14 Dec 2017


It has been three weeks since the Autumn Budget  and since then we’ve been busy engaging with members, stakeholders and government departments following on from the announcement of a consultation on non-compliance with IR35  in the private sector. While the continued emphasis on IR35 is disappointing, we are pleased that the government has heeded our calls to consult broadly on the matter and to not rush through any changes. Representing the industry’s views on this issue will continue to be a top priority for the REC in 2018.

Since the budget, HMRC joined us at our engineering and technology sector meeting and we attended HMRC’s IR35 stakeholder forum earlier this week. The key points to update are:

Scope of the consultation

HMRC were keen to stress that this consultation is looking at compliance with IR35 in the private sector in its broadest sense. Extending the public sector rules to the private sector will be considered as part of this but it will be a wide ranging consultation, spurred on by reports that non-compliance with IR35 in the private sector will cost the exchequer £1.2 billion by 2021/22. This is a considerable jump from previous estimates. We have pressed HMRC and the Treasury to provide further details on the model they are using for this.

Timing of consultation

HMRC were not able to provide dates for when the consultation would be published but it will be in the new year at the earliest. We will continue to stress that businesses, recruiters and contractors need to be consulted properly with sufficient time to prepare for any changes. The government also needs to bear in mind other issues like Making Tax Digital reforms, the consultation on employment status following the Matthew Taylor Review, and the Brexit timetable.

Research on IR35 impact in the public sector

HMRC have commissioned independent research on the impact of the IR35 changes in the public sector. This research is focused on public sector bodies only. Contractors and representative bodies have not been consulted. We are concerned that this will not provide an accurate picture of the impact of the reforms. HMRC have said that they will ensure that the scope of their research is made clear when it is published in the new year which we will continue to push for. This research project makes it all the more important for us to gather evidence from our industry on the impact of the changes. We have been doing this through our survey  which we encourage you to complete. We also need to gather more detailed case studies. If you would like to support this, please get in touch.

Next steps

We will have to wait for the consultation on IR35 to be published in the new year to review the details and respond. In the meantime, we will continue to make representations to HMRC and the Treasury and work with other affected organisations to highlight how important it is that the consultation process is meaningful and reforms are considered carefully. We will also continue to gather evidence from members through our survey, webinars and sector meetings. To contribute to our work, please get in touch.

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