HMRC has just published the minutes from the December meeting of the IR35 forum. These minutes show that the thorny issue of off payroll working in the private sector was raised and discussed but it's clear that HMRC is driving the agenda here. The trade and other bodies in attendance were reduced to taking some comfort that consultation was to take place, but experience of such consultation elsewhere in the tax arena means that little comfort is found in that process. In many instances, a consultation is lip service and in others an opportunity for HMRC to widen the scope or close the holes in their proposed legislation.
The members attending report that three separate HMRC officers indicated that "reform" in the private sector was coming and coming soon. These might be individual comments, but HMRC would surely have carefully briefed officers attending such meetings and those working in this area and it may be that such "leaks" are a means of softening up the expected resistance.
So what would reform look like?
The only real example is the public sector reform from 2017. There, many public bodies reacted by applying a blanket policy of all contractors being employees, regardless of the operating means, i.e. umbrella, agency, own co or direct. That approach has led to claims from those representing contractors of unfairness, incoherent policy, abandoned projects, increasing budgets and a drift away from public sector working. On the other hand HMRC claim they have been a huge "success" and have led to an increase in compliance.
Unfortunately for HMRC they are unable to measure the cash effect of that success, because they started the policy with no benchmark of potential tax collection. This makes such claims therefore hard to understand and difficult to use as justification for extension.
The minutes do show for the first time however a value for the tax cost of non compliance with IR35 in the private sector. This is put at £1.2bn by 2020. The basis of the calculation appears not to have been disclosed or challenged and for the moment however there is no sensible means to say if it is correct or not. It is not hard however to imagine that this number, whispered into the ear of a Chancellor desperate for money, is very persuasive.
What would be more useful is a comparison value for the loss to GDP is contractors in the private sector are forced to become compliant. How many would leave the UK? How many would seek out the dangerously constructed schemes advertised in any internet search and punted by glib sales people? Would clients take on permanent employees or would we see outsourcing of projects on a huge scale?
This debate goes to the heart of a key contractor issue.
HMRC, for all its failings, refusal to listen, refusal to explain policy, tendency to ignore consultation, do speak with one voice. They devise a plan (explained or otherwise), brief their people, brief the Government and stick to it regardless with a consistent and usually simple message based on "everybody must pay what's fair."
Contractors do not speak with one voice. Look at the IR35 forum meeting. Representatives from 8 different bodies on the contractor side. Of those, 3 were professional (accounting/tax) bodies whose remit is far wider than contractors. 4 more were trade bodies and 1 was active in working with contractors. With the best will in the world, it's hard to see those bodies working together. For instance, we commissioned a piece of work on the value that contractors bring to the economy. It's now perhaps 2 years old. If we did that work again to judge the damage done by public sector reform and extrapolated to the private sector, whilst we may not have a perfect answer, it's something that is tangible and would need to be acknowledged by HMRC.
If that piece were to find its way to MPs debating "reform to increase compliance" would it make a difference? We don't know because each time it's been tried, there is a tendency to dismiss such work as being niche or subject to vested interest.
The lack of ONE body to represent contractors of all types is a problem.
We are not suggesting that the Co-operative is the answer to this debate but we are asking for ideas as to how this has to be done.
Contractors have been put on notice. 9 months to the next Budget. 13 months to that being law. 14 months to possibly the biggest change in contracting, ever.
If you have any questions or would like to talk to us about becoming a member of the Contractor Co-op please get in touch. Either call us on 020 3468 0009 where we can talk through your individual situation or send us a message to firstname.lastname@example.org.