HMRC under fire over IR35 off payroll consultation

HMRC is looking for input to a consultation on the workings of IR35 - the off payroll working rules due to impact the private sector from April 2020.

HMRC’s consultation on IR35 is already under fire as critics accuse the government of underestimating the complexity of the task ahead and risking missing the opportunity to make the whole process more user friendly for a key sector of the UK workforce.

The HMRC invite for input to a consultation on IR35 – the off payroll reforms for the private sector, due to impact from 6 April 2020 – is calling on all those who work through an intermediary eg through their own personal service company (PSC), seeks to understand how best to implement reform in ‘the larger and more diverse’ private sector.

Others called to comment include: agencies, companies, partnerships and individuals who are engagers of people who work through their own intermediary; public authorities receiving worker’s services provided through an intermediary; accountants and other agents representing people who work through intermediaries or representing engagers who pay workers engaged through intermediaries; HR managers and those who deal with recruitment processes and payroll.

Dave Chaplin, chief executive officer and founder of contracting authority ContractorCalculator criticised Mel Stride MP, Financial Secretary to the Treasury for saying he wants to ensure as simple a process as possible ‘for employers to be able to assess the employment status of employees or contractors providing services and that this is central to the consultation.’

“He is living in cloud cuckoo land along with the rest of the Government,” says Chaplin. “The BBC, which is just one company, has said that after two years of dealing with off-payroll they are still having major issues with employment status. The BBC is blaming HMRC for its flawed CEST tool, and HMRC is blaming the BBC for its assessment processes, abnegating all responsibility for the mess at the broadcasting corporation.

“How are firms going to assess the employment status of over 500,000 PSC workers accurately, starting next month for those entering 12-month contracts. Time and time again we have told HMRC that rolling out the reforms is going to be hugely damaging for UK plc but our warnings and evidence to prove it have fallen on deaf ears.

“Companies need to hire on-demand contingent workers to help them grow. As a result of the Off-Payroll rules, they will no longer be able to do this without rapidly accumulating considerable tax risk onto their balance sheets equivalent to half their annual cost of hiring contingent workers. This accumulating risk reduces the value of companies, and any subsequent HMRC investigation could quickly force them into bankruptcy.

“This could encourage companies to hire off-shore talent based in markets outside of the UK where the threat of tax risk is not part of their day-to-day operations. Alternatively, they may decide to relocate outside of the UK, or not come to the UK at all. The Off-Payroll rules impose a significant barrier to business growth and a threat to the future prosperity of the UK economy. This legislation effectively raises a sign to entrepreneurs saying “do not start a company here.

“If the Government wants to raise tax from the flexible workforce, who work off-payroll, they should simply introduce a new simple off-payroll tax, payable by every firm that hires contingent workers, and discontinue their misguided crackdown on their concept of “disguised employment”. With Brexit on the horizon, more uncertainty in the shape of the off-payroll tax will be disastrous.”

Related: Avoiding IR35 as a contractor

Julia Kermode, chief executive of The Freelancer & Contractor Services Association (FCSA) said: “Whilst we know there is clearly no stopping the legislation from going through, there are some positives amongst the negatives outlined in HMRC’s consultation today. I am pleased that HMRC is committed to making the supply chain more transparent, requiring better communication with contractors as currently the process is flawed. I am also pleased to read that responsibility for tax and NICs will lie with the last UK-based entity in the chain which will serve to close possible loopholes for offshore schemes. Any move that helps police the industry more effectively and rid the sector of any abusers is a good thing. HMRC’s commitment to reviewing the online tool is also welcome and FCSA is meeting with HMRC next month to share our concerns and make suggestions.

“On the negative side I am disappointed to hear that HMRC is proposing that the 5% expenses allowance will be removed, in line with the public sector reforms. Now, more than ever, contractors are going to need more accountancy help to navigate the new rules. It was also disappointing that there was no mention of any appeals process being put in place or any details on how to challenge a wrong assessment.”

Off-payroll working rules from April 2020 Policy paper and consultation document, is available here .

Closing date for comments is 28 May 2019.

Further reading: Contractors choosing an umbrella scheme need to be on the alert

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