Chancellor of the Exchequer Philip Hammond’s recent budget announcement has revealed that IR35 regulations regarding contractors will be extended to the private sector from April 2020. Past plans had slated the change for 2019 but the latest budget reveals that the government has taken contractor concerns on board in giving private sector contractors a larger buffer between now and the implementation of the changes.
IR35 refers to a set of regulations concerning the taxation of temporary workers. It was first brought in to curb the ‘Friday to Monday’ phenomenon, whereby temporary workers would leave a job on a Friday and start again at the same company on the Monday, effectively working as a permanent employee but paying less income tax and no national insurance contributions due to their use of dividend payments rather than wages.
It currently affects workers in the public sector but has yet to be implemented in the private sector. The new changes to IR35 will only affect medium to large sized businesses, the Chancellor has said, but it is unclear where the line is drawn between small and medium, meaning large swathes of small businesses could be made to pay up to 10% more for hiring flexible workers. This is especially harmful for growing businesses who cannot afford permanent workers – which could be seen as a peculier move for a ‘pro-business’ government seeking to navigate Brexit successfully.
The implementation of IR35 upon the private sector may introduce rising costs, shrinking talent pools and a shift to permanent work among many – and therefore a significant reduction in flexibility within industry. Critics of the proposed changes have claimed that the new regulations are simply taxing contractors as full-time staff without providing employment rights such as annual leave or sick pay.
The delay hasn’t only given contractors and companies more time to prepare, but the government too, and many are urging the Chancellor to rethink the reform and to get it right first time without harming the private sector as a whole.