IR35 experts size up off-payroll working consultation
Hopes from the private sector that the 2020 off-payroll working rules will be much more than a new and improved version of the public sector’s IR35 changes of 2017 have been dashed.
In a today’s HMRC consultation to implement the rules, the government admits that the now in-force changes to the Intermediaries legislation will be policy-makers’ “starting point”.
It contradicts oral evidence given on Monday by HMRC’s Jim Harra, who told MPs (at 16:02:34) that the 2017 reform is ‘not a template’ it can simply stick onto the more diverse commercial sector.
But the “incoming changes” to IR35 proposed in the consultation “do -- at this point in time -- look very similar to the ones introduced in the public sector in 2017,” observes Qdos Contractor.
“Given public sector reform has not been a success…[it’ll be] all the more important that….companies prepare for reform” it adds. “Don’t wholly rely on the taxman for support.”
In its consultation, HMRC prefers that the 2017 rules have worked “adequately”, and says not extending them will cost £1.3bn a year by 2023/24, as Mel Stride MP said on Monday evening.
Chartered tax adviser David Kirk takes exception. “Mr Stride says that failure to act in the private sector will cost the taxpayer £1.3bn.
“It won’t -- it will actually save the taxpayer that much albeit some of it illicitly. It will cost the government this sum, which is a very different.”
Mr Kirk added: “This sort of Orwellian news-speak has become pervasive in the tax system and I think we need to call ministers to account on that too.”
The Freelancer & Contractor Services Association is more upbeat about the HMRC consultation, saying it contains “some positives amongst the negatives”.
Those negatives are largely the many features the private sector framework will retain from the public sector's; the engager deciding IR35 status, for example, and the 5% allowance for contractors ending.
“[But we are] pleased that HMRC is committed to making the supply chain more transparent, [and is looking at] requiring better communication”.
'Cascaded to all parties'
The FCSA is referring to the consultation saying that legislation will be passed to ensure that the client’s IR35 determination is “cascaded to all parties within the labour supply chain.”
The reasons for the determination will also be cascaded, ‘so all parties are aware of their obligations’ and so, secondly, blanket determinations devoid of ‘reasonable care’ can be stemmed.
“The government thinks strengthening the existing rules by requiring the client to directly provide the off-payroll worker and the fee-payer with the reasons for the status determination on request will go some way to address this concern [non-compliant blanket determinations].”
The consultation, which says not all blanket determinations are non-compliant (HMRC’s so-called ‘guinea pig model’ is endorsed), adds: “It may be that the client has provided the reasons for their determination together with their status determination to the party they contract with.
“In this circumstance under the proposals set out above, those in the labour supply chain will be obligated to pass both down the labour supply chain until it reaches the fee-payer and the off-payroll worker should have received both items from the client directly.”
'Put in place a process' (for when contractors disgaree)
The other big change which the consultation proposes for clients is that, to address disagreement with their IR33 status decisions, they should create a resolution process.
“It may be necessary for a process to be put in place to allow for determinations to be challenged,” HMRC says, cueing up question 13 out of the 18 posed in the consultation.
“As a minimum the government would expect any process to include the consideration of evidence put forward by the off-payroll worker and/or fee-payer, advising the party of the outcome of that consideration and the reasons for that outcome.”
Other questions for contractors and other affected parties to respond to by the consultation deadline -- May 28th 2019 --include whether an off-payroll worker (contractor) would want to make pensions contributions via their fee-payer (agency).
'Look to ehance CEST'
Absent in the consultation’s list of questions is anything about CEST -- the much criticised IR35 tool which the government committed to improving at Budget 2018.
In fact, despite Mr Harra using his appearance to MPs on Monday to say CEST would be expanded to cover more roles, the consultation merely repeats HMRC’s commitment to ‘look to enhance’ it.
Improved guidance will also be looked at by HMRC, as will “education and support for those affected to help them prepare for, and implement changes to the off-payroll working rules,” the consultation says.
Four ‘reform preparation tips’ for the rules conclude the consultation, including the advice -- deemed by some as “spurious” -- for clients/agents to evaluate their current contractor arrangements.
Affected parties are further invited by HMRC to comment on incoming anti-avoidance provisions to stop abuse of the ‘small company’ exemption; a move to bring non-corporate, unincorporated entities into the scope of the April 2020 rules and, more controversially, “modify” the liability-transfer rules.
IR35 expert Kate Cottrell says amending the transfer rules so that the liability rests with whichever party has failed to “fulfil its obligations” -- as HMRC puts it, will not be straightforward. Or likely welcomed.
“The proposal for transferring liability until the relevant party has carried out ‘its obligations’ sounds extremely messy and on the face of it looks like parties could hold the liability for a matter of days or weeks,” she said.
For contractors, she believes that the bigger wins are the small instances where the template approach -- simply superimposing the April 2017 rules -- is not being taken by HMRC.
“Perhaps the most important one [of the changes] for contractors is including the contractor in the process, with the right to see the reasons behind the assessment and having the right to challenge the assessment together with a ‘client-led’ disagreement process,” the Bauer & Cottrell co-founder said.
“And CEST is going to be refined yet again but it is really disappointing to see there is no time limit on this, i.e. no actual date, which should be in the next few months rather than the ridiculously late roll out of this tool in the public sector, which in itself caused huge problems.”
Editor's Note: Related --
Off-payroll recap: what the Treasury promised Vs what HMRC proposes
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