HMRC closed consultations on IR35 private sector reforms
On August the 10th, the government closed consultations for implementing IR35 in private sector.
The HMRC are analysing the feedback received via consultation, and it remains to be seen will they pay much attention to it.
HMRC still insists that extending reform from public to private sector is “lead option” for tackling non-compliance in private sector. However, most experts disagree, as they clearly said in their public comments.
‘Don’t do it, and definitely don’t do it anytime soon’
This was commented from The Association of Independent Professionals and the Self-employed (IPSE).
They believe that the reforms will be “short sighted” especially around Brexit and its uncertain effect on UK economy, and they will damage UK’s flexible workforce which is possibly the main economic advantage.
IPSE‘s top recommendations is that HMRC should ‘abandon’ extending public sector reform completely. However, they believe that government is more likely to proceed with the reforms, so they recommend that it is at least not too soon.
Their other recommendations include a call for agreement that the Check Employment Status for Tax (CEST) tool actually works, which is not bad at all having in mind that CEST has been heavily criticized for giving inaccurate results in the past.
Public has no faith in in HMRC’s CEST tool since HMRC lost number of IR35 tribunals recently, so IPSE asked a question: “how can the government expect businesses to make complicated IR35 determinations when HMRC, with all its expertise and resources, can’t do it”?
‘Do not extend the off-payroll reform to the private sector’,
Qdos Contractor, contractor insurance provider, said that impact reforms had in public sector had been significant and damaging on thousands of workers who were genuinely operating outside IR35.
They have considered how compliance can be improved without the need for large-scale ‘disruptive’ reform.
According to Qdos, HMRC should properly observe their own Litigation and Settlement Strategy (LSS) and code of conduct during enquiries. Qdos also think HMRC already have the tools and enough information to hand to which they can use to identify where they feel there are potential risks earlier, such as tax returns, quarterly reporting and Connect.
“HMRC should improve their own efficiencies, make use of the powers already afforded to them, and follow their own code of conduct in protecting taxpayers rights…” and they “strongly believe that a case-by-case assessment… is the only manner in which to apply IR35”.
“New rules, if introduced, should not apply to the smallest private sector businesses.” said Crunch, online accountancy firm.
They suggest that the new rules should only apply to businesses with a turnover of more than £50 million, and that only businesses with the ability to follow the rules need to do so.
They also recommend that the new rules should not be implemented soon, but to leave at least 18 months to evaluate the impact on public sector. Considering that NHS and TFL admitted struggling with reform, and that many public projects have been delayed there is a high possibility this will be repeated in private sector, what Crunch wouldn’t like to see happening.
The FCSA claim that HMRC’s various assumptions regarding how many PSCs are non-compliant and how much this noncompliance costs the treasury are over inflated and just being used to “push through legislation outside of the allowable timescale”.
The FCSA (Freelancer and Contractor Services Association) offered alternative option – the ‘Enhanced Reporting and Enforcement Solution’
“The Enhanced Reporting and Enforcement solution will allow Personal Service Companies (PSCs) to retain responsibility for their IR35 status, as they currently do, albeit with an obligation of reasonable care.”
End hirers and intermediaries will be more involved through sharing information which will be reported quarterly to HMRC making it easier for them to target non-compliance and make accurate risk assessments.
The Chartered Institute of Taxation (CIOT) suggest something similar. They believe that better data sharing with HMRC is the best way of tackling non-compliance.
CIOT’s proposes that the contractor should still be responsible for reporting their IR35 status. But businesses should electronically report payments made to the personal service company, along with their view on whether the personal service company should be applying IR35.
The combination of this would allow HMRC to monitor contractors and see if they’ve applied IR35.
There should be stricter penalties for missing PAYE/NIC payments which would encourage compliance.
Contractor Calculator came out with an interesting approach. They published a comment made by Philip Hammond in 2001.
The current Chancellor said that “one reason why the Government’s IR35 initiative has been so damaging and destructive is the fact that it has hit at the most flexible part of the economy.”
Dave Chaplin, Contractor Calculator CEO, is encouraging contractors to write to their MPs, to get them to ask why the Chancellor has changed his mind.
Now it is up to HMRC
Many experts agree that, if not completely abandon implementing IR35 in private sector, at least it should be delayed until its full impact on the public sector can be seen.
With so many criticisms it will be hard for HMRC to defend their “lead option”.
Will they even consider critics or some alternatives, is yet to be seen.