The latest IR35 consultation, which opened on 5 March 2019, highlights some of the complexities of rolling out the proposed changes to off-payroll working rules to the private sector. The government’s intention to exclude small private sector businesses from the new rules has been known for some time, but there is still no watertight definition of what will constitute a small business. This is a crucial factor and needs clarification as soon as possible to save businesses regarded as small from the burden of preparing for the new rules.
The consultation suggests using the definition of small organisation from the Companies Act 2006, but this only applies to limited companies. If employers are a small unincorporated business, for example, a sole-trader or a partnership, the proposition that just turnover and the number of employees can be used to define a small business is a questionable approach. A business might qualify as small only if it defines members of its workforce as off-payroll, the whole crux of the issue IR35 is trying to address.
There is also a significant question over timing. The pledge in the consultation that the legislation to introduce IR35 changes will be in a draft Summer Finance Bill could be difficult to keep, as the consultation runs to 28 May 2019. This leaves a very short window to incorporate it into any draft Summer Finance Bill.
The government is likely to run up against its own self-imposed deadline, a potential repeat of what happened when IR35 was introduced in the public sector. The previous very short implementation timetable caused considerable disruption, allowing little time for engagers to move affected businesses to ‘common’ payment dates, which in turn led to huge burdens on payroll and accounts teams and incorrect tax and national insurance contribution (NIC) rates and allowances being applied.
Nigel Morris is employment tax director at MHA MacIntyre Hudson