A summary of responses to HMRC’s ‘Off-Payroll working rules from April 2020’ has identified several fundamental flaws with HMRC’s proposals. The feedback consists of 29 consultation responses from the likes of the Institute of Chartered Accountants in England and Wales (ICAEW), the Confederation of British Industry (CBI), the Recruitment and Employment Confederation (REC) and the Association of Independent Professionals and the Self Employed (IPSE).
Among the key issues and recommendations made were:
- Halt reforms until April 2021
- Opposition to client-led disagreement process
- Liability model unfair on compliant parties
- Calls for deemed employees to receive employment rights
- Small company exemption not viable
- Check Employment Status for Tax (CEST) tool is still not fit-for-purpose
- Widespread non-compliance with the Off-Payroll rules in the public sector
- Concerns over the timing of the proposals in relation to Brexit.
Following HMRC’s previous off-payroll summary of responses, there was widespread mistrust throughout the contracting industry that the feedback was an accurate representation of industry opinion. Representatives for the contracting sector accused HMRC of cherry picking the responses to support their own agenda, while key issues were glossed over or ignored.
The independent summary concluded that many of the key issues have not been tackled by HMRC and are still presenting major concerns. Once again, stakeholders urged HMRC to adopt a holistic approach to IR35 by granting employment rights to ‘deemed employees’. This was one of the key recommendations made in the Taylor report, which sought to protect contingent workers from exploitation. Despite widespread evidence of non-compliant blanket IR35 rulings in the contracting sector, the government has refused to consider the issues together.
There was also widely expressed concern that the government have deemed off-payroll a success before the completion of a full compliance cycle. This has resulted in calls for a full review into the impact of the public sector changes before introducing the reforms into the private sector next year. HMRC has consistently failed to consult with contractors on the implementation and impact of the off-payroll rules. Industry spokespeople have pointed out that this one-sided approach is enabling hiring organisations to engage in non-compliant practices, while placing contractors in an increasingly vulnerable position.
A recent independent investigation presented convincing evidence of widespread blanket IR35 assessments in the public sector. Both Network Rail and the Met Office disclosed unfeasibly high numbers of contractors deemed to be inside IR35 in response to a freedom of information request from the investigating body. The organisations said that the assessments had been carried out under HMRC’s guidance and that the results were not open to dispute.
This last point illustrates the objections to HMRC’s proposed client-led status disagreement process. Stakeholders are unanimous that any process needs to be led by an impartial, independent party. The IPSE stated that: “It is against natural justice that the dominant party in the process should be empowered to lead the disagreement process.” Not only is it unlikely that the hiring organisation would change its mind and find in favour of the contractor, the lack of guidance from HMRC clearly enables hirers to forego a fair process by stating that their initial assessments are “final.”
One area of concern that saw the hirer facing potential sanctions was liability in the supply chain. HMRC’s current proposal imposes tax liability on compliant organisations where it is unable to recoup sums from other non-compliant parties. This approach has been judged as grossly unfair by representatives for both the recruitment sector and general commerce.
Most business also agree that, although the small business exemption is welcome, this is not a long-term solution. There’s a general view that the exemption legislation is too complex in practice, as well as being open to exploitation from larger firms seeking to avoid their responsibilities. The exemption also does little to encourage the business growth that the economy so desperately needs with the current Brexit uncertainty.
The widespread consensus from the feedback was that, considering the current issues, including the terminal problems around CEST, HMRC has not given businesses adequate time to prepare for an April 2020 rollout. In addition, the economic situation surrounding the UK’s departure from the EU means that most industry representatives are calling for further reforms to be delayed until at least April 2021.
Contractors are being urged to prepare for the change by familiarising themselves with IR35 legislation, keeping up to date with any changes, and seeking expert advice where necessary. For an overview of the changes to date, read our 1R35 guide.
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