HMRC have held a consultation on the IR35 rulings around off-payroll workers within the private sector. Recently rolled out to the public sector last year, the sector faced shambles for workers that lent their services to public sector clients through their personal service companies, with many blanket-ruled inside of IR35 without much due-diligence. After an enormous shift of workers between the sectors as aftermath, the focus is now on the private sector and how to ensure that no damages, delays or costs are affected.
The long-awaited consultation which lasted 3 months, drew to an end last week on 10th August. From this it was requested that the proposed extension should be disallowed or even simply deferred after concerns of unfair loss. Self-employed persons may lose a considerable amount of their income (take-home sum) within the new guidelines, whilst operating through their personal services companies (PSC). This remains to be seen currently as no changes are to be made prior to 2020 as there will be disturbances to handle within businesses with the added burden of the possible effects of Brexit.
A significant point of the consultation was drawn around the disputed employment status for contractors. It was announced that it was currently under separate consultation following on from The Taylor Review of Modern Working Practices. HMRC have been asked to prioritise and look ahead at the anticipated employment versus self-employment taxation prior to any off-payroll rule extensions within the private sector.
From the review it states: “Determining whether you are an employee, a worker or genuinely self-employed requires the ability to understand complex legislation, which is spread over many Acts, and be aware of a mountain of case law. For individuals, not knowing your employment status means not knowing what employment rights you deserve. For businesses, this situation can lead to uncertainty about their responsibilities and what can be demanded from workers. The situation does not need to be this complicated.”
The pinnacle of the dispute is that clients will have the ability to declare the off-payroll rulings which could be made applicable to a larger amount of situations than is realistic and true. This could be applied unless the PSC have a greater position to challenge those decisions made by the clients. Otherwise, there will be no right to appeal to HMRC should both the PSC and the client dispute the classification, rather the responsibility to clarify will be held liable within the two parties to find the resolution.
Michael Steele of AAT (Association of Taxation Technicians) stated: ‘It is vital that the right decision on tax is taken in the first place given the difficulties that PSCs have in challenging their position. It is expected that many private sector businesses will rely on HMRC’s check employment status for tax (CEST) tool to determine the position. We have a number of concerns about the quality of the answers that CEST provides and call for measures to ensure that the CEST is developed into something that is reliable and accurate and in which both worker and client can have confidence.’
The consultation on the extension has attracted controversy from professionals within the industry. Many are heavily suggesting that the evidence that HMRC are trying to balance their decisions on are not sufficient or plausible for a fair assessment of employment status, with the CEST tool coming under fire time and time again for its unclarity with no note of future amendment as of yet. With the contractors’ umbrella body, IPSE has issued warning over the tools reliability also, they have raised a significant concern around how the clients could be expected to determine their IR35 status, when HMRC’s purposely created tool cannot do so.
When IR35 was rolled out into the public sector last year it changed the sectors workings. Research curated by the IPSE stated that ‘the changes did serious damage to the public sector, causing walkouts, project delays and even cancellations.’
The ability to lend workers to companies and contractors flexibility will be in great need as the UK faces Brexit and the upcoming changes within the economy. With a vaster network within the private sector under threat, the concerns of how to handle this in the most effective manor that does not impact the flexible workers productivity within the sector is vital. The DD of IPSE stated ‘Not only would the changes be a major administrative burden for private sector clients; they would also limit businesses’ access to skilled flexible labour and ultimately drive down productivity.’
How this will be handled in the Private Sector, still remains to be seen.