Start date for the extension of off-payrolling should be delayed to April 2021

The start date of amending the off-payrolling rules and extending it to the private sector should be put back to 6 April 2021 to allow all stakeholders – including HMRC – time to prepare on the basis of enacted legislation that provided certainty and resolves operational issues.

ICAEW Tax Faculty expressed this view in its response (ICAEW REP 86/19) to HMRC’s invitation to comment on draft legislation published in July 2019.

The draft legislation is intended to align the tax treatment for payments made for workers’ services provided through intermediaries, where the client is a medium or large organisation, in the private sector with the tax treatment for payments made for workers’ services provided through intermediaries where the client is a public sector organisation.

The proposed legislation is ambiguous and falls below our principles that tax legislation should be simple, certain and properly targeted. The draft legislation contains gaps that HMRC is having to address by providing extensive guidance. Onerous responsibilities are allocated in an uncertain way. It is unlikely to enhance compliance with the existing IR35 legislation that HMRC has struggled to enforce effectively since 2000.

The draft legislation highlights that this is a sticking plaster solution to a underlying policy problem that needs a long term solution which does not impose excessive compliance burdens or incentivise one type of employment status over another.

The start date should be delayed until April 2021 to enable all stakeholders, including HMRC, properly to prepare on the basis for this change: this includes the need for the legislation to be improved, operational issues to be resolved and the final IT specifications to be published. In addition, further work needs to be done to improve the ‘Check Employment Status Tool’ (CEST) and for HMRC to publish further guidance.

As to the draft legislation itself our recommendations include:

  • on information flows the legislation needs to be put into plain English to ensure that everyone in the labour chain can understand what they are expected to do rather than relying on legislation that spells out consequences for not doing something – see new s61N(5) in para 12(3) which says that unless and until the client provides an employment status determination to the worker the client is liable to withhold PAYE if the worker is a deemed employee;
  • on status determination statements we should welcome confirmation that the output from HMRC’s CEST, which is being enhanced, will satisfy both the reasons for conclusions requirements and the taking reasonable care requirements (on the basis that that reasonable care was taken to ensure inputs are accurate);
  • the client-led disagreement process needs a backstop deadline to give the client certainty but without preventing the worker from completing their self assessment return on the basis of not being a deemed employee;
  • recovery of PAYE which is to be dealt with in secondary legislation should be consulted upon before the primary legislation is enacted; and
  • a period of grace of a tax month after the end of the tax month for reporting under PAYE real time information is needed to allow for mismatches between payroll and invoice payment dates.

Detail is key and too many operational points remain unresolved even though the public sector regime has been in force since April 2017. We are in separate discussions with HMRC on these points.

This consultation has highlighted the need to provide a ‘tracked changes’ version of the current legislation that is being amended by these provisions: without such a document it is difficult even for tax and legal professionals to understand how the revised legislation will work. We recommend that for the future, best practice when inviting comments should be to publish a ‘tracked changes’ document as part of the consultation package, and alongside the draft Finance Bill legislation. That will enable all stakeholders to understand exactly what the changes mean.