On Tuesday 5th March, HMRC published their long awaited consultation on off-payroll working rules. The consultation aims to help HMRC understand how to best improve the reforms in preparation for their proposed introduction to the private sector in 2020. Umbrella Exchange takes a closer look at the consultation and its main action points:
Improving communication
In order to improve communication and transparency, HMRC has proposed that the client must directly communicate the IR35 determination to the contractor, giving reasons for their decision when necessary. Currently the information is passed down the supply chain to the contractor, often via the agency or other intermediary, which can result in miscommunication or a lack of information being made available to the contractor.
Making the correct status determination
Concerns have been raised over private sector organisations making blanket decisions on IR35 in order to avoid liability. Despite this situation having occurred in the public sector with dire consequences for organisations such as the NHS, the document consultation document maintains that HMRC has seen few examples of blanket decisions being made. The document also states that the rules should be applied in accordance with the facts of each particular engagement. However, unless the proposed overhaul of CEST goes ahead, this will still leave organisations with inadequate tools for determining employment statuses, and liability for any wrong decisions made.
In the event that a dispute arises between the client and the contractor regarding employment status, the document suggests a client-led disagreement procedure. HMRC’s reasoning is that this will be a natural extension of the direct communication between the client and contractor, with the assumption that many of these disputes will be resolved in real time. While alleviating their own end of year disputes burden, HMRC fails to acknowledge the considerable administrative burden that this will place on the client. This will also place the contractor at considerable disadvantage as they will be unable to appeal decision.
CEST Tool
In the consultation, HMRC notes that they are “Continuing to work with stakeholders to identify improvements to CEST, and to seek wider guidance to ensure it meets the needs of the private sector.” After the initial roll out of the reforms to the Public Sector, many problems were highlighted with the CEST tool. In the consultation document, HMRC states that they understand the “complex nature” of the Private Sector must be a key consideration in enhancements made to the tool.
Employment Status
Maintaining that their focus is on stemming lost revenue to the Exchequer through non-compliance, the document defers the double standard of contractors being ‘employed for tax purposes’ to a separate consultation. The issue of having two separate structures to determine employment status and tax was highlighted in the Good Work Plan as creating an unfair disparity. Contractors found to be inside IR35 are taxed the same as employees, while having no legitimate claim to employment rights such as sickness and holiday pay.
Draft legislation informed by the responses to the consultation document is expected to be released in the summer. HMRC must ensure that adequate time and guidance is provided to ensure the smooth implementation of the reforms in April 2020.
If you have any questions about the off-payroll working rules, get in touch with our team today. Call now on: 0203 393 3881