Treasury opens consultation on taking the off-payroll rules into the private sector

The consultation the contracting industry has been expecting for a year was published this morning. Off-Payroll Working in the Private Sector sets out the government's case for extending the reform applied to the public sector in April 2017 to every engagement in the economy, and asks for views on how, not whether, to do it.

The document's argument is one of cost. HMRC estimates that only one in ten of the people who should be applying IR35 to their engagements actually does so, and that the resulting loss to the Exchequer will reach £1.2 billion a year by 2022-23. The public sector reform, which moved the decision on status from the contractor to the engaging body and the responsibility for deducting tax to the fee payer, is presented as the proof that the alternative works: the Treasury says it has brought in an additional £410 million in its first year.

What is proposed

The consultation's lead option is to apply the public sector rules to the private sector as they stand. The engaging business would decide whether the contractor is inside IR35, using HMRC's check employment status for tax tool or otherwise, and would be liable if it got the decision wrong without taking reasonable care. The fee payer would operate PAYE where the engagement is inside. The contractor's own company would drop out of the calculation.

Two alternatives are floated and neither is developed with much enthusiasm. One would require engagers to carry out and record status checks, and to keep the evidence, without making them liable for the result. The other would leave the decision with the contractor but require the engager to gather information about the supply chain and pass it to HMRC. The document says both would raise less and cost more.

The research

Published alongside the consultation is the independent research HMRC commissioned on the public sector reform. It finds that most public bodies were able to make status decisions, that the majority reported no difficulty filling posts, and that the number of contractors moving into permanent employment was small. The industry's bodies say the survey period, in the first months after the change, is too early to show what happened, and that the finding on recruitment contradicts what every NHS trust and government department has told them in private.

IPSE, the FCSA, the CIOT and the recruitment industry have all responded to the document, and their message is the same. The public sector reform has produced blanket inside determinations by risk-averse bodies, an exodus of specialist contractors, and a status tool that gives wrong answers. Extending it to the private sector, they argue, would do the same to the two million businesses that engage contractors, with none of the resilience of a government department.

The consultation closes on 10 August. The Treasury has committed to nothing beyond considering the responses. The industry has three months to assemble its evidence.