Treasury takes over 'extend off-payroll rules' rhetoric

Her Majesty’s Treasury appears to have taken over from the taxman in making the case for the public sector’s off-payroll rules to be extended to the private sector.

Mel Stride, the financial secretary to the Treasury, used a newspaper interview to say there was “an issue of fairness” in deciding whether both sectors should have the same set of rules.   

“We are seeing far fewer [workers in the public sector] offer their services through service companies…yet the private sector is able to carry on with that behaviour unchecked,” he said.

Although seemingly unchallenged by the interviewers (the Intermediaries legislation of 2000 regulates the private sector), the claim is an example of the increasingly firm language Whitehall is using to discuss IR35 reform in the private sector.

In July, HM Revenue & Customs said there were “no plans” to extend the off-payroll rules after research it ran about the off-payroll rules sampled companies, not just public bodies.

A month later, HMRC was again forced to deny it was quietly preparing for the extension, because it entitled a guidance note “apply the off-payroll working rules in the private sector.”

Pressed by ContractorUK at the time, HMRC pointed out that in the private sector, IR35 had “not changed one iota.” And crucially, it added: “Only HM Treasury can decide on changing or widening the [off-payroll] rules” to the private sector.

“The public sector has undergone a behavioural change which means we are seeing far fewer [workers] offer their services through service companies,” the Treasury’s Mr Stride said last week, referring to a reported 90,000 contractors who joined payrolls in the three months since April.  

Interviewed by the Financial Times, Mr Stride also said: “It is not just the issue of tax that we might not be collecting that we should be collecting. It is also an issue of fairness between the public and private sector.”

This implied need for a ‘level playing field’ has been flagged up by IR35 experts as the type of grounds that the government might use to justify rolling out the off-payroll rules to all PSCs’ end-users.

But it was absent from the many arguments that HMRC’s Jim Harra made earlier this month, in a criticised and, in part, inaccurate outline of the rules’ impact since they hit in April.   

His attempt to highlight the need for the rules followed even wider criticism of HMRC, after it was accused of ‘passing off’ its opinion about the rules as the official record of a formal meeting.

Status experts, accountants and contractors widely regard both moves by the Revenue as a covert attempt to persuade ministers -- if not the potentially already persuaded Treasury -- to extend the off-payroll rules to the private sector.

But tax expert Chris Sanger believes that lessons should be learnt about the April framework before consideration is given to superimposing it on the private sector.

In particular, Mr Sanger, head of tax policy at EY told the Sunday Telegraph that ministers should “fix the problems faced by those operating the new rules” ahead of any extension.