IR35 extension to private sector postponed until April 2020
On Monday 29th October, chancellor, Philip Hammond, delivered the Autumn Budget for 2018.
The chancellor announced plans to increase the national living wage by 4.9% to £8.21 an hour from 2019 and will also raise the personal allowance threshold to £12,500. There are now 3.3m more people in work since 2010. The chancellor predicts the creation of 800,000 new jobs by 2022.
The 2018 growth forecast has been downgraded from 1.5% to 1.3% but for 2019 has been raised from 1.3% to 1.6%. The forecasts have also been raised for the years 2020 to 2023 to 1.4%, 1.4%, 1.5% and 1.6% respectively.
Funding for Brexit preparations has increased from £1.5bn to £2bn.
The biggest news for many, however, will have been the announcement that the extension of IR35 to the private sector has been postponed until April 2020. Below, the industry reacts to the budget:
Victoria Roythorne, head of compliance and contractor care at Outsource UK, stated, “Today’s announcement applying IR35 to the Private Sector from 2020 has really only raised more questions. Whilst it’s good that the Government has listened to the Consultation responses and has given businesses time to prepare for this change, the fact the law will only be applicable to large and medium firms makes little sense. For a start, what size bandings will differentiate a small or medium firm?
“Hammond said that ‘IR35 was designed to ensure fairness’, but surely applying complicated legislation to only medium and large sized businesses doesn’t create a level playing field?”
“It is very likely that contractors who are given an ‘inside’ status will look to increase their daily and hourly rates as a direct result, so this legislation could well end up costing firms more as the supply chain looks to recoup costs. So in reality, small firms will no doubt be affected anyway.
“Firms need to go into this legislative change with their eyes open. The difference in how contractors are taxed will have repercussions not only in terms of cost but compliance too. We know that 51% of central bodies found the IR35 rules hard to implement, with 32% of public sector central bodies having difficulty filling roles as a result.
“What is most important is compliance. Firms need to get on board with the changes otherwise they risk not only a financial hit, but losing out on the best talent too. This legislation definitely does not mean that businesses can’t use contractor resource. It does mean that they must be aware of what the changes mean, so that when they do tap into the UK’s talented flexible worker-pool, all parties get the best, most compliant, outcome.”
Colin Morley, professional services director at Harvey Nash Recruitment Solutions, added, "Businesses and contractors across the country can breathe a sigh of relief, though not for very long. The Government's decision to delay the introduction of the new IR35 rules to the private sector until 2020 shows that they've listened to the warning of experts and industry leaders: That IR35, in its current state, will hurt innovation, productivity and ultimately the economy. We hope HMRC will take this period to reflect upon the deeply flawed regulation and make the necessary adjustments to support, not hinder, the UK's business and contractor communities. However, contractors and end users must prepare for the substantial changes afoot, opening dialogue, re-evaluating scope and expanding networks to support substitution."
Michael Johnson-Ellis, managing director of Healthier Recruitment, stated, “We applaud The Chancellor’s decision to inject extra funds into mental health crisis services, an area which hasn’t received its fair share of funding increases over the past five years. However, cash alone will not guarantee better patient outcomes: it is absolutely vital that any additional resources are directed in the most efficient way.
“In our extensive work with mental health trusts we have found that, from a staffing perspective, some wards are not managed in the most effective way. For example, overreliance on agency workers can impact both continuity of care and staffing spend. This, in turn, makes the environment more chaotic and the workplace less attractive for substantive staff, which further exacerbates the problem. In this instance, extra funding will not address the core issues.
“We also have questions around where the talent will come from in order to provide enhanced services across all the settings the Chancellor has outlined. Official figures show that the number of mental health nurses registered in the UK has dropped 12% in the last decade, while one in five current NHS nursing vacancies are for mental health specialists. In the long-term, we must pipeline specialist talent to be able to deliver the level of service that Philip Hammond has promised, however, in the short term, trusts must manage existing workforces strategically to ensure they are firing on all cylinders.”
Jo Sellick, managing director of Sellick Partnership, shared, “Chancellor Philip Hammond has delivered his Autumn Budget with the bold headline claim that ‘austerity is coming to an end’. But, despite this being the longest Budget in a decade, there was very little content committing to this pledge. With puns and gaffs aplenty, Hammond managed to talk the talk and threw in some token gestures like raising the personal tax allowance to £12,500, pledging more money to the NHS and mental health funding and a digital service tax for the likes of Google and Amazon. Unfortunately, much like we have seen time and again with Brexit negotiations, the Budget was relatively meaningless and failed to provide the certainty that the UK economy so desperately needs."
Samantha Hurley, operations director at the Association of Professional Staffing Companies (APSCo), said, “While we maintain that extending changes around off-payroll working to the private sector will have an adverse impact on the strength of the UK’s labour market and wider economy, we welcome the fact that HMRC and HMT have taken on board the advice of APSCo and other influential bodies that it was wholly unfeasible to introduce changes as early as April 2019.
“When APSCo met with Rt Hon Mel Stride MP to discuss the concerns of our members during the consultation period, one point he couldn’t fail to take on board was the need to give businesses - including those in the recruitment sector - enough time to properly prepare for any changes.
“There is no doubt that the timeframe is still tight, and we would have hoped to see draft legislation before next summer. However, organisations will at least have a clearer idea from the upcoming consultation on the detail of the changes to enable them to upskill their workforces to be able to make appropriate status determinations and to get their internal processes and IT systems in order, to cope with the new rules.
“HMRC’s budget brief suggests the off-payroll rules will be extended in their current form into the private sector. APSCo has expressed real concern that the current public sector rules would not work properly in the private sector, particularly given fears over the accuracy of the CEST tool, and the lack of liability given to the end client.
“The Chancellor has confirmed that small organisations will be exempt from this extension, stating that it would minimise the “administrative burdens for the vast majority of engagers”. This seems to suggest that the Government believes that the vast majority of “engagers” of contractors are small businesses. We need to understand whether HMT means the end client users or the engagers to know how far this will limit the burden on businesses. However, we welcome that HMRC has listened to our concerns around the ability of small businesses to deal with this extra burden.
“I’d like to thank the 143 APSCo members which took the time to feed into our official consultation response, as well as those who provided individual responses. After all, it is only through sharing what’s happening on the ground that we can continue to influence policy in this way for the benefit of the entire recruitment profession.”
Recruitment & Employment Confederation (REC) chief executive, Neil Carberry, commented, “Businesses across the country will welcome the pro-enterprise tone taken by the Chancellor this afternoon. While we would have liked to see more on reforming the Apprenticeship Levy to allow the training of temporary workers, delaying changes in taxation for private sector contractors is a big win for business. This was the main thing the REC wanted from the Budget as it maintains access to short-notice skills and expertise at a vital time. We’re delighted the Chancellor has listened.”
“Recruiters report that changes in the public sector have not gone as planned – and have fuelled tax avoidance by the unscrupulous. It is time for a pause for thought, and that is what the Treasury and HMRC must now do.”
Adrian Marlowe, chairman of the Association of Recruitment Consultancies (ARC), said, “Whilst there was no suggestion that the delay is to consider other options, delay is very welcome.
“This should allow time for a review of the position post Brexit as well as an opportunity for the government to complete its assessment of the employment status rules that were subject to consultations earlier this year. As IR35 relies on employment status tests, it makes sense to have those finalised before any further change.
“Whilst the government is right to collect tax where it is being avoided, the current rules are confusing and give rise to unfairness in many cases not the least where contractors operate a genuine business that would normally be entitled to tax reliefs. We at ARC have argued for various alternatives, all of which would take the stress for hiring businesses out of the equation, and retain key points of principle.”
“ARC will continue to work with its members to attempt to influence change to a fairer system. We recommend that all recruitment businesses that supply contractors to the private sector should prepare well in advance.”
Martin Talbot, group marketing director at totaljobs, commented, “Today’s Budget proved hugely promising for both jobseekers and employers, with a target to deliver 800,000 more jobs in the UK by 2022. With the signalled end of austerity, predicted sustained real wage growth, and unemployment at its lowest rate in over four decades, now is an excellent time for candidates looking for a new opportunity.
“The £695m initiative to help small firms hire apprentices will enable more workers to learn vital skills in the industries they choose to specialise in, and will allow more employers to take on apprentices and provide necessary training and development for the younger workforce.
“We now expect employers to step up to compete for top talent and fight for the most skilled and in-demand individuals. Employees looking to make their next career move can take great encouragement from today’s announcement, and we will surely see candidates demanding much more from their potential employer as the UK jobs market continues to flourish.”
Pete Taylor, director at Encore Recruitment, said, "In a struggling labour market where supply is continuing to outstrip demand, is a tax crackdown on those self-employed, who may or may not be underpaying on national insurance contributions, simply going to further upset the employment apple cart?
"For sure, we have to applaud efforts to ensure that all employed, and their employers, pay the correct level of tax and NI and a robust system that enforces that basic requirement is the responsibility of both employers and the government.
"But this latest announcement has myself and many more in the recruitment industry genuinely concerned. The thinking and timing behind this reform seems flawed and ill-considered. Associations, that represent the interests of many self-employed workers and contractors, have challenged the evidence behind this move and answers have not been forthcoming. Surely this alone should raise enough concerns to allow for a stop and think moment?
"However, if introduced, this new legislation can only be as good as it is enforced. Delegate responsibility of that enforcement to recruitment agencies and businesses and the situation becomes more troubling and problematic.
"As a recruitment agency working nationwide across multiple sectors, we fill 18,000 positions every year. Do we now have to be accountable and rule on whether each worker is under direct supervision, direction and control or whether they are genuinely self-employed?
"We need confirmation of the problem, clarity on areas of responsibility and support to enforce. And we will have to, as an industry, flag that this move could adversely affect an already fragile labour market. We continue to struggle to find the level of workforce needed to meet supply – either because they are simply not there in numbers or no longer willing to work for low hourly rates. Additional legislation could act as another employment barrier and we could lose more people from the marketplace as a result.
"Whilst we wait for this new strategy to be introduced in 2020, it allows plenty of time to check the validity of the proposal.
Our clients, the key and volume employers of contractors and the self-employed, are facing far greater concerns – the impact of a no deal or bad deal Brexit, slowing and stalling UK growth figures and the most chronic lack of workforce candidates seen in the lifetime of most businesses. There are surely bigger issues to tackle and better answers to find?"
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