The Government has announced plans to consult on extending IR35 legislation to the private sector.
The Government says the legislation, which has already been rolled out in the public sector, will ensure individuals who effectively work as employees are taxed as employees, even if they choose to structure their work through a company.
It says: “A possible next step would be to extend the recent public sector reforms to the private sector. The government recognises the importance of taking account of the needs of businesses and individuals who would implement any change. The consultation will draw on the experience of the public sector reforms, and external research already commissioned by the government and due to be published in early 2018.”
The plans are highly controversial. A survey by ContractorCalculator in September found 76% of public sector departments have lost highly skilled freelance contractors and 71% of projects have been delayed or cancelled as a result of IR35 tax reforms brought in earlier this year in the public sector.
IR35 was introduced in 2000 with the aim of countering tax avoidance and specifically aimed at the limited company contractors that organisations hire. It is designed to combat ‘disguised employees’ – which HMRC believes would be employees of the client if they did not work through a limited company. New legislation introduced for the public sector in April moved the onus of evaluating IR35 tax status from the worker’s own company to the public sector body hiring the worker. These are now liable for collecting taxes and ensuring compliance.