IR35 reform for the private sector: where are we now?

Following on from December's general election, we take the pulse of IR35 reform today.

Organisations have come to be reliant on flexible resource to deliver change and transformation - IR35 reforms won’t change this need for flexibility. The contractor model has long allowed large organisations to stem their skills shortages and deliver projects. However the reforms look to change the way that organisations use this resource in the future.

The government intends to align the obligations of large private sector businesses with the public sector from 1st April 2020 when it comes to the tax status of their contractors working via personal services companies. Through IR35, HMRC aim to tackle the issue of ‘disguised employment’, and the new reforms shift responsibility of determining individual employment status from HMRC to the hiring organisation.

Private sector organisations are now racing against the clock to ensure compliance with the reforms. Non-compliance means that the hiring organisation could risk facing up to 40% additional costs if the contractor is deemed ‘inside IR35’, to cover NI and PAYE contributions and also potential fines as seen in NHS Digital who incurred a £4.3m fine by HMRC.

Throughout the election campaign, political parties were wrangling for the votes of big businesses and contractors alike. Promises to conduct IR35 reviews from Labour, Conservatives and the Liberal Democrats suggested political parties were trying to win back the trust of self-employed individuals.

Large organisations and contractors still remain in a state of uncertainty about their future.

The Chancellor of the Exchequer, Sajid Javid, promised to review the extension of IR35 to the private sector. Javid also promised to look at improving self-employed workers’ access to pensions and mortgages. However, an IR35 review is not mentioned in the Conservative manifesto, making it a multi-billion pound project that has not been budgeted for.

Andy Chamberlain, Deputy Director of Policy at the Association of Independent Professionals and the Self-Employed described a review as “welcome news to freelancers across the UK. When the changes to IR35 were introduced in the public sector, they not only stifled freelancers, but worsened staffing problems for the NHS and many other essential public sector bodies.”

Large organisations and contractors still remain in a state of uncertainty about their future. It seems that the UK government is listening, but whether the reviews do indeed transpire remains to be seen. For the time being, the new IR35 legislation is still set to go live in April 2020 and organisations must take action now.

Businesses can't afford to wait for the Conservative's proposed review. The FTSE businesses that we are working with have teams mobilised establishing the IR35 status of contractors and consultants across their business, and are gearing up for the introduction of IR35 reform in April 2020.