Government reviews implementation of off-payroll working reforms, but no delay

We welcome the fact that the government is undertaking a review to help smooth the transition but, as we have said to government previously, we are concerned that businesses will not be able to be ready by April 2020 and have been pressing for a year’s delay.

The Government has launched its promised review into the implementation of changes to the off-payroll working rules from April 2020 to determine whether any further steps can be taken to ensure the smooth and successful implementation of the reforms.

The review will engage with affected individuals and businesses on their experiences of the implementation of these reforms and gather evidence from stakeholders representative of those affected by the reform, contractor groups and medium and large-sized businesses.

The Government will also carry out further internal analysis, including evaluation of HMRC’s enhanced check employment status for tax (CEST) tool and public sector bodies’ experience of implementing the reform to the off-payroll working rules in 2017.

The review will conclude by mid-February 2020.

By way of background, the original rules, colloquially known as IR35, were introduced with effect from 6 April 2000. Their objective was to ensure that someone working like an employee but through a company or similar intermediary pays similar taxes to employees. Under the IR35 rules, the contractor is responsible for determining whether in the absence of the company or similar intermediary through which they work they would be an employee of the end client.

Reforms introduced in April 2017 were designed to help tackle non-compliance with the IR35 rules by making public sector bodies responsible for determining the employment status of their contractors. Further reforms, announced in the 2018 Budget and which come into effect on 6 April 2020, will make medium and large organisations in the private and third sectors responsible for determining the employment status of contractors.

As part of the review, the government will explore whether there are any further steps it could take to support businesses in correctly determining employment status.
The off-payroll working rules do not affect the self-employed working direct for clients as only those working through companies and other intermediaries are in scope.
The government will launch a separate review to explore how it can better support the self-employed.

Employment status is a judge-made test and even enhanced CEST does not cover some important case law such as mutuality of obligation in the employment sense. Furthermore, the draft legislation for the prospective reforms published in the summer contained gaps (see our response to HMRC’s invitation to comment on the draft legislation ICAEW REP 86/19). Three years after the public sector reforms were introduced, there remain too many operational questions that need clarifying (see our 57 Q+As TAXguide 16/19 and our list of practical questions submitted to HMRC in December ICAEW REP 127/19). As we said in our representations on employment status (ICAEW REP 45/18), eliminating disguised employment requires fundamental long-term solutions which would include reducing tax and NIC differentials between different types of income.

Anonymous
  • Thank you Robert.  But I would rather at least start with a CEST that correctly reflects the law.  In addition HMRC should undertake to update it promptly in respect of decided cases.  Taxpayers are entitled to nothing less.

    As to the score, presumably the consolidated appeal was on one group of issues so perhaps the current score should be out of five.

  • Thank you Robert.  But I would rather at least start with a CEST that correctly reflects the law.  In addition HMRC should undertake to update it promptly in respect of decided cases.  Taxpayers are entitled to nothing less.

    As to the score, presumably the consolidated appeal was on one group of issues so perhaps the current score should be out of five.

  • Thank you Robert.  But I would rather at least start with a CEST that correctly reflects the law.  In addition HMRC should issue a statement that they will update the CEST promptly in line with decided cases.  Taxpayers are entitled to nothing less.

    As to the current score, the consolidated appeal was presumably on one group of points, so perhaps the score should be out of five, in terms of points decided.

  • Sorry, I meant to say that if one assumes that HMRC would not deliberately waste taxpayer's money, and accordingly would input a taxpayer's circumstances into CEST and only take a case to appeal if CEST indicates that a person would be within IR35 (after all their litigation and settlement strategy says they will only take a case to appeal if they think they have a better than 50% chance of winning) FTT decisions ought to provide a good check on the supposed reliability of CEST.

    I see from BAILII that last year there were 6 IR35 cases. One fo those was a consolidated appeal fo three cases, so say 8 cases. Of those HMRC won three and the taxpayer 5. That suggests that CEST is only 37.5% accurate

  • If one assumes that HMRC would not deliberately waste taxpayer's money, and accordingly would input a taxpayer's circumstances into CEST and only take a case to appeal if CEST indicates that a person would be within IR35 (after all their litigation and settlement strategy says they will only take a case to appeal if they think they have a better than 50% chance of winning) FTT decisions ought to provide a good check on the supposed reliability of CEST..