The summer of 2015 will not be remembered for its sunshine but it will certainly be remembered by the CIPP as one of the busiest for government consultation publications, says Diana Bruce.
Below is a summary of the CIPP’s survey findings and recommendations to government on reform proposals for employment Intermediaries.
Employment Intermediaries and tax relief for travel and subsistence
This consultation laid out a proposal that would see the removal of tax relief for workers travelling to their workplace where they are:
- Supplying personal services
- Engaged through an employment intermediary (including umbrella companies, certain employment businesses and personal service companies)
- Subject to (or to the right of) the supervision, direction or control of any person
The CIPP joined with BDO in surveying stakeholders to gather views on the subject.
These proposals are part of a strategic approach to clarify the differences between employment and self-employment and the use of employment intermediaries. We welcome a move towards such clarification however, are not convinced that these proposals will achieve such clarity.
In light of the publication of the Travel & Subsistence review in September, we believe that the introduction of any of the proposals contained in this consultation document should be postponed until the Travel & Subsistence review has concluded as the outcome of these proposals will not have been fully determined and therefore outcomes, once measured, could impact on the ultimate success of the Travel and Subsistence review work.
Our survey results suggest that fairness and equity across workers is a desired priority of respondents, albeit at the cost of simplicity. A moderate increase in administrative burden would, it seem, be tolerated by engagers.
Setting aside the challenge of establishing whether supervision, direction and control actually exists due to the subjective nature of such a task, survey comments suggest that to achieve this on a consistent basis where the intermediary may have little or no sight of day-to-day operations will result in widespread use, by the increasingly risk averse, of a default position of supervision, direction and control being applied to all workers.
As these proposals will impact on the take home pay of many workers, we believe that the need for HMRC to provide information and educational materials, utilising all mediums to all affected stakeholders, is critical. This is particularly the case for workers, who have little or no understanding of the terms under which they are engaged (our survey results suggest this may be as many as 93%) and who will simply see an increase in their take home pay.
The timescale being worked to by HMRC is to see changes being implemented with effect from 6 April 2016. Assuming this does not change, the message from HMRC to this group needs to be delivered soon and it needs to be clear.
Anecdotal evidence suggests that the business of some employment intermediaries will cease as a direct result of these changes. If this is the case, there will be a negative impact on affected engagers as they revisit work offered, cost models and workers who will look to the welfare system to top up their reduced net pay.
Where HMRC believes that there is widespread abuse through the delivery of non-compliant schemes, it should look to be both consistent and visible with its enforcement activity. As with our response to the IR35 discussion document (see below), there appears to be a perception that widespread policing by HMRC does not occur, changing the rules will not remove the need for HMRC to enforce compliance.
The consultation document stated that any consequential legislative changes will be announced at Autumn Statement 2015 (25 November), to be taken forward in Finance Bill 2016.
Intermediaries Legislation (IR35) discussion document
The CIPP again worked together with BDO in gathering views and opinions in a joint survey to feed into our response to this paper. The IR35 discussion document, readily acknowledging that it is yet at an early stage for making change, is looking to explore options that will make IR35 legislation more effective in protecting the exchequer and again look to ‘level the playing field’ in what it perceives to be a widespread abuse of the current system.
We are concerned that the underlying premise of this discussion piece is that HMRC are unable to fully police the current IR35 regime due to limited resources (84% of respondents to our survey believe that HMRC should be policing IR35 more intensively and directly with the personal service companies). We would therefore question the wisdom of immediate further regime change. Time should be allowed for the measurement of success, or otherwise, of recently introduced reporting requirements. Any change, whenever it is intended to be made, will be resource intensive for all parties, including HMRC.
It is widely believed that the current IR35 regime is not understood by stakeholders who should be fully compliant. We believe that clear, concise guidance produced in a variety of mediums and aimed at a variety of users, PSCs, engagers, workers and agents will provide a cost effective measure that could be undertaken in a shorter time span than the time needed for further consultation and regulatory change.
Much research has been carried out and continues to be so, on the subject of employment status. The Office of Tax Simplification published a report under the previous government that highlighted the benefit to be gained of having a range of well-designed employment status tools aimed at the different users. IR35 was identified as being one of those users. Clearly laid out and agreed business principles that underpin such a tool should also be openly available within guidance to ensure that there is clarity for all stakeholders. When asked, the majority of respondents believed that rules could be simplified if there was a clearer definition of employed and self–employed.
From survey results it is clear that the reasons for engaging the services of a PSC are many and varied, but by far the strongest reason given is that it is the only way to source specialists needed for the business. The proposal to transfer the obligation for ensuring compliance is achieved by making the engager, rather than the PSC responsible is viewed by the majority as being a significant and costly burden. 56% of respondents believe that the liability for tax penalties and interest should remain with the PSC.
We believe that a small amount of time be granted to allow for a period of review – to establish whether those changes will indeed bring forward the improvements they are predicted to make. However, in the meantime, HMRC should:
- raise the profile of the existing IR35 regime, by improving guidance
- raise the profile of the penalties that exist under IR35, using a variety of mediums to disseminate the information
- monitor and review the data provided under the new reporting mechanisms by employment intermediaries
In the months to come we shall see the government’s response to these and the many other consultations and reviews that have been published this year and we will find out if the concerns raised by professional bodies have been listened to, if only, we hope, in part.
It will also be interesting to see what announcements are made in the Autumn Statement following recent news reports that ministers are discussing forcing people in PSCs to become employees on the payroll after one month's work. Following the enormous amount of work carried out by all professional bodies and their members during the summer of surveys, we can only hope that government have listened and given due consideration to our submissions.
The Policy Think Tank area under Membership/My CIPP contains a list of all current consultation surveys, associated documents and consultation responses.