Pay awards have settled around the 2.5% mark this...
Consultation on IR35 regime for the private sector
Following the changes to IR35 in the public sector in April 2017, how IR35 operates in the private sector is being looked at by the government.
IR35 is anti-avoidance legislation introduced in 2000 and applies where the services of an individual are provided to a client via an intermediary (usually the individual’s personal service company – a PSC) in circumstances where, if it was not for the PSC, the individual would have been an employee (or office-holder) of the client. If IR35 applies, the PSC is obliged to account to HMRC for tax and NI. However, many PSCs conclude that IR35 does not apply and HMRC believes that in nine out of ten cases in the private sector the IR35 rules are not applied correctly - and that it’s losing over £1 billion a year in tax revenue.
This is potentially huge for HR because companies will already have existing contracts with PCSs and these might not allow the company to deduct relevant taxes and NICs. HR therefore need to be looking at this now, in the event that the rules do change.
The IR35 rules were toughened up for the public sector in April 2017 when responsibility for deciding whether the rules apply and for deducting the appropriate taxes passed from the PCS to the public authorities and their subcontractors.
The consultation lists options for reform of IR35, including extending the public-sector changes to the private sector. It runs until 10 August 2018. We shall be keeping a close eye on this as its impact on HR could be very significant.