The changes to IR35 regulations will be extended to the private sector, the Chancellor of the Exchequer has confirmed in his Budget.
However, the change will be delayed until April 2020 and will only apply to large and medium-sized organisations.
In April 2017 the government introduced new rules to deter public sector employers and workers from using off-payroll working to reduce their tax liabilities.
The changes to the rules – which are known as IR35 – meant that it was left up to public-sector employers to determine whether national insurance contributions and income tax applied to the self-employed contractors working for them.
Mike Hibbs, lawyer at Shakespeare Martineau, said: “Following the roll-out of IR35 to the private sector, businesses will have to be far more stringent with their employment checks. Incorrectly identifying people as an employee, a worker or self-employed could have serious financial implications for organisations going forward.
“Ensuring that employment contracts accurately reflect the circumstances of an employee’s engagement will also be essential.”
“The employment landscape is becoming increasingly complex and this latest move by the government is unlikely to make things any more straightforward for employers.”
Chris Bryce, chief executive at the Association of Independent Professionals and the Self-Employed (IPSE) said the changes could force some organisations out of business.
“It is a short-term tax grab that will do lasting damage to the economy by taxing out of existence the smallest and most agile businesses,” he commented.
“These are the very businesses the government and large corporations will need to call upon to provide the specialist skills to navigate our way through Brexit.”
Victoria Roythorne, head of compliance and contractor care at recruitment firm Outsource UK, said the announcement raised more questions for employers. “Whilst it’s good that the government has listened to the consultation responses and has given businesses time to prepare for this change, the fact the law will only be applicable to large and medium firms makes little sense.
“For a start, what size bandings will differentiate a small or medium firm?
“Hammond said that ‘IR35 was designed to ensure fairness’, but surely applying complicated legislation to only medium and large sized businesses doesn’t create a level playing field?”
Other measures announced by the Chancellor included:
- increasing the national living wage from £7.83 to £8.21 from April 2019;
- reducing the proportion that smaller employers need to pay awards apprenticeship training from 10% to 5%;
- increasing the work allowance for those claiming Universal Credit to £1,000 per annum;
- running a consultation on the remit of the Low Pay Commission beyond 2020; and
- increasing the personal allowance and higher rate threshold to £12,500 and £50,000 respectively for 2019/20 and 2020/21.