Why the government ignored your 2020 Off-Payroll rule concerns
Agreement among the contractor community is sometimes hard to come by, but almost without exception everyone who responded to the HMRC consultation on the off-payroll rules in the private sector, called for one thing -- to sort tax and employment status out in one hit, writes Kate Cottrell, co-founder of IR35 advisory Bauer & Cottrell.
The same call, namely, to join IR35 reform all together with the Taylor review / the recommendations made in the Good Work Plan, was also made by industry players in responses to the previous consultation on roll-outing the off-payroll rules in the public sector.
These recommendations are ones that the government and HMRC have each already accepted. So it’s surprising that despite being called for twice, the calls have fallen on deaf ears.
Judges join the joined-up approach call
But there’s been a third call. In fact, we have now heard judges in the tax tribunal urge the same thing, and this came only days before the publication of the draft Finance Bill containing the clauses to reform IR35 from April 2020. In Kickabout Productions V HMRC, the judges said:
“In its ‘Good Work Plan’ published in December 2018, the Government stated its intention to ‘legislate to improve the clarity of the employment status tests reflecting the reality of modern working relationships’. The reforms to the offpayroll working rules are also due to be implemented next year. In our view, increased clarity is badly needed.
“We were referred to and considered over 50 decisions relevant or said to be relevant to the issues before us, often decided some time ago when working practices may have been very different. In addition, two of 7 the leading authorities, Ready Mixed Concrete and Market Investigations, are some 50 years old, with the terminology of ‘master and servant’ more redolent of another era. The resultant uncertainty in relation to employment status is highly unsatisfactory.”
Government gives the same old reasons for rejecting the joined-up approach
In its response to the May 2018 consultation, the government again makes the point that, “On employment rights there is no link between employment status for rights and employment status for tax,” and then they mention again Matthew Taylor’s Good Work Plan.
It adds again that “this is not straightforward and any changes will need careful consideration to avoid unintended consequences”. In the meantime “it is right that government takes action to improve compliance with existing rules,” the consultation says.
Throughout the entire consultation process, the government and HMRC have maintained that all the evidence provided to it counts for nothing and is anecdotal. We have seen ministers simply reading out the same line to rebuff it all, over and over again. Even when questioned by fellow MPs, they still stick to the same script. This is incredibly frustrating for everyone and especially those that have undertaken extensive research among their members -- research that often shows the opposite of government’s/HMRC’s contentions.
Officialdom still claims that the public sector off-payroll rule roll-out was a resounding success, and HMT/HMRC claim they have seen little financial impact on businesses of having to implement the new rules. Extraordinary!
Back in the early days of the IR35 Forum, HMRC wanted to do three things – reduce the size of the IR35 population; raise awareness of IR35 and make their own jobs easier when it came to IR35 investigation work, as it was time-consuming. Various things were tried such as the Business Entity Tests and quickly dropped.
All then changed with the off-payroll rules in the public sector and everyone could see this, as the blueprint for all sectors. It simply had to be shown, as being easy for the public bodies to administer and at little cost either financially or at the cost of flexibility. They had to claim they had “no evidence” to the contrary if the intention was to roll this out to the private sector too.
The proposed private sector IR35 rules
These proposed rules go further than the in-force rules for the public sector, but are now due to apply to both sectors from April 2020. The fact is that the public sector IR35 rules have achieved the initial aims shared with the IR35 Forum:
1. Reduce the size of the IR35 population
Evidence shows a big jump for some into umbrella companies and some avoiding public sector roles altogether. No doubt similar changes will be seen in the private sector.
2. Raise awareness of IR35
Hugely successful, helped by the various ‘anti’-IR35 campaigns and commentary.
3. Make HMRC’s job easier
The introduction of a client-led status disagreement process so the client does all the work will help achieve this. And further, HMRC said they would not undertake targeted retrospective investigations – something they cannot really guarantee (and try telling this to the BBC cases).
Why wait for the Good Work Plan?
No doubt we will see in the private sector all the issues that came up in the public sector such as ‘blanket’ IR35 assessments. To just add the Employer NICs to costs at this stage may be palatable to some engagers, but not a whole remit of employment rights that could go with it under the Good Work Plan.
So contractors, put yourselves in HMRC’s or HMT’s shoes for a second. What would you do first? Implement the Good Work Plan at the same time, or first create tens of thousands of ‘deemed employees’ under the new off-payroll rules and then give them all employment rights? It seems to us that this may have been the plan all along!