Autumn Budget IR35 Private Sector Reforms


Tax evasion in the UK might soon be a thing of the past if the measures taken by the government are anything to go by. In April 2017 the government announced the CFA act 2017 and later that year the act was signed into law. The act would see the recruitment agencies become liable to any facilitation of tax evasion by anyone within their supply chain.

The dust is yet to settle, after over a year of confusion, with everyone speculating on the possibility of slapping the private sector with similar rules. But the government views the implementation as a success and have shifted their focus to the private sector. And the fear of many was confirmed in October 2018 in the autumn budget. Despite the many controversies surrounding the matter, the government announced that they would enact the IR35 reforms with effect from April 2020.

What does this Mean for the Private Sector

The reforms state that all medium and small businesses will have to assess each of their employee’s employment status and determine whether they are operating by the IR35. The business is supposed to deduct income tax and national insurance contributions from the salaries of all the contractors and independent employees who fall within the IR35 reforms.

Facts on File

According to the government, since the implementation of the law in the public sector, the Treasury managed an extra £550 million in tax revenue. They are anticipating more significant figures immediately the extension of the law to the private sector takes effect come next year. However, the feeling is not mutual with the recruitment agencies in the public sector.

The legislation was drafted in December 2016 and announced in April 2017 before getting signed into law in September 2017. This time was too short to adjust by the public sector, given they lacked the expertise and resources. As a result, most organisations in the public sector resorted to the implementation of the blanket approach in respect to the IR35 determinations to their workers, whereby all independent professionals and contractors were treated like regular employees following the IR35 reforms.

This caused many organisations in the sector to lose key talents in the organisation. It also led to increased costs of labor thanks to day rate increases and extra-statutory employment costs.
Steps to be taken by the private sector organisations

We all know how serious the government can get when it comes to “their money,” and the consequences that can befall you should you mess with that. To avoid any troubles, it would be prudent that organisations in the private sector take the necessary steps before the law is effected. Unlike the public sector who had little time to prepare and ended up with fatal consequences, the organisations in the private sector have up to April 2020, which I consider enough time to take cover.

Here are some of the protective measures we think you should implement

  1. Act Now- the year 2020 might seem to be far, but you will be surprised at how fast time moves. Strategize now and assemble the necessary expertise and skills needed to meet the requirements of HMRC while operating in a manner that is both time and cost effective.
  2. Seek experts guidance- Partnering with experts will ensure that you understand the reforms in depth and help you be fully compliant with the law without compromising your productivity. The experts can assist in assessing the in-demand talent, assess the tax status of your employees as well as determine the IR35 status of the contractor. This will give you confidence in the business as you have very little left to worry about regarding the reforms.
  3. Formulate a long-term strategy- the risk does not end with getting your employees to comply with IR35 reforms. You should have steps in place that ensure the entire workforce maintains the position and you should be aware in case a member shifts from inside to the outside of the IR35 determination.
  4. Conduct a risk assessment test- it is good to know your level of exposure. This may include a medical check-up of your workforce to find out how the reforms may affect you and try to find solutions in advance.

Impending Consequences

Failing to observe the law may lead to the following repercussions:

  • Fines and Financial losses.
  • HMRC will impose hefty fines to any organisations that fail to take measures that may prevent tax evasion.
  • The organisation may also have to pay for unpaid taxes and national insurance contributions.
  • Increased cost of labor

As witnessed in the public sector during the implementation of the law, an organisation may incur additional costs of contingent labor due to increased day rates.

Article written by: darlia