Autumn Budget 2018: No roll-out of IR35 to private sector

The recruitment industry perceptibly breathed a collective sigh of relief after last week’s budget revealed that there would be no roll-out of IR35 to the private sector – yet.

The Association of Recruitment Consultancies (ARC) welcomes the cautious approach adopted by the Chancellor in his budget in relation to imposition of the public sector tax rules (commonly known as IR35) on the private sector and in further considering employment practices following Matthew Taylor’s report earlier this year.

There is no doubt that the extension of the IR35 rules to the private sector would be highly testing. There is significant evidence that the public rules and the means of deploying it by way of an online tool (CEST) are unsatisfactory. Both ARC and Association of Professional Staffing Companies (APSCo) had challenged various aspects earlier this year, and there is an argument for saying that both the rules and the means of deployment are incompatible with historical business tax law.

Adrian Marlowe, chairman of ARC, said: “These two areas are linked and are critical for the success of the recruitment supply industry which plays a key role in supporting businesses and facilitating flexibility in the UK, itself a key factor in the success of our economy. Despite the clear linkage neither is being considered in connection with the other, and both propositions should be expanded to consider the role and nature of businesses.

“ARC invites all who agree that there should be a wider joined up review into these areas to work with it in campaigning for a full and proper debate. The outcome has the potential to affect productivity and shape the UK’s ability to compete in the context of a highly competitive global environment.”

Recent research by APSCo found that the public sector is suffering the consequences of the new IR35 rules, with 70% of recruiters finding contract placements in the sector have dropped since April 2017 and 45% reporting increasing charge rates for contractors.

Samantha Hurley, Director of Operations at APSCo, commented: “On behalf of our members, we are incredibly relieved that the Government has stepped back from the brink of introducing any rushed or hasty extension of the off-payroll rules into the private sector.

“APSCo has called for a review of the impact of the public sector off-payroll rules, and is very pleased that the government has decided to consult more on this issue before implementing new legislation in the private sector. Extension of off-payroll into the private sector remains a possibility and reform of some kind seems certain as the government estimates they could lose £1.2bn per year by 2022/23 if they do nothing. However, they have acknowledged that it is right to take account of the needs of businesses and individuals who would implement any change.”

The Freelancer & Contractor Services Association (FCSA) echoed these stances. Julia Kermode, chief executive of FCSA, said: “We are pleased that the Government recognises that employment status is an important and complex issue, and will be exploring options for longer-term reform making employment status tests for both employment rights and tax clearer.

“We were also extremely pleased that there will be no knee-jerk reaction to lower the VAT threshold following OTS’s recent report, due to the impact on small and micro-businesses, including professional freelancers. It is essential that we do not disrupt the economically important army of highly skilled contractors that provide necessary services to businesses, and we welcome the Chancellor’s plan to consult on whether the VAT threshold could better incentivise growth.”