IR35 and the private sector – update

April 30, 2018

The minutes of a meeting from the IR35 Forum in December 2017 have now been published by HMRC, in early February 2018.  This was the first meting since the government announced a consultation process on reforming IR35 in the private sector. Currently, the contractor rather than the customer decides whether their contract is within IR35 .For public sector contractors, the ultimate customer now decides whether the contractor should be subject to the IR35 rules for that particular contract: What is IR35?

HMRC has advised public sector bodies to use the check employment status for tax (CEST) tool to decide on the IR35 status of a worker and that it will stand by the results of the test.

A freedom of information (FOI) request submitted by ContractorCalculator showed that the CEST tool was used significantly up to October 2017 (over half a million times) and has been used circa 40,000 times a month since then.  The request highlighted statistics of 31% of contracts tested ‘within IR25’, 54% of contracts tested were outside IR35 and in 15% of cases, CEST could not provide a definitive answer.

Outcome from the Forum meeting:

• HMRC said: “Applying a decision to a group of workers with the same role, terms and contractual conditions can be appropriate.”
• HMRC specified that it would not be appropriate for a public sector body to rule all engagements in or out irrespective of the contractual terms and actual working arrangements.
• The idea from a member of ‘naming and shaming’ avoidance scheme promoters  was turned down by HMRC.

The Forum itself:

• The CBI will become an IR35 Forum member, partly to input on concerns that private sector reform will be more difficult as its supply chains are more complex than those of the state sector.
• In reply to a member who asked what the “criteria for success” in the public sector was, HMRC declined to be drawn, but said extending the April ’17 rules that apply to the public sector was only one option to be looked at in the forthcoming consultation.
• The forum will enlist former members, such as the FSB and IoD, but will overall become a subgroup of the Employers Payroll Group. An external member will be a joint-chair, alongside the HMRC chair.

With a consultation due to be published in 2018, ContractorCalculator CEO Dave Chaplin believes any proposed private sector changes will be announced in 2018’s Autumn Budget – with legislation then going live in April 2019.