IR35 scrutinised as uncertainty and unanswered questions remain
The readiness of businesses for the impending off-payroll rules in the private sector came under question by the accountancy bodies at the House of Lords finance bill subcommittee evidence hearing last Monday.
Representatives from the accountancy bodies told the subcommittee that businesses are not ready for the reforms to come into effect in April because the “legislation is not yet ready”.
As part of the House of Lords finance sub committee’s investigation into the extension of the off-payroll working rules into the private sector, the professional body representatives raised concerns in particular over the uncertainty on the rules.
Anita Monteith, the tax technical lead at the ICAEW said: “We’ve still got around 100 questions sitting with HMRC that we’ve asked on specific technical matters and we have been told that we aren’t going to get specific answers to those questions.”
HMRC told the ICAEW that the answers will become apparent when the guidance is released.
The subcommittee also heard how small and medium-sized businesses are less ready because unlike large employers who have in-house tax teams, they’re not knowledgeable about tax – let alone something as complicated as what the off-payroll reforms have become.
Even though large employers are in better shape than smaller ones, ICAS’ Justine Riccomini didn’t think anyone was really ready.
It’s not helping matters that the legislation is not finalised, said ACCA’s Jason Piper. He pointed to the fact that the actual implementation rules are still being set out by HMRC as late as this month.
Piper’s was referencing HMRC’s announcement on 7 February where changes to the operation of the off-payroll working rules will only apply to payments made for services provided on or after 6 April 2020.
“To still be finessing the rules this close to implementation has to be a concern for business,” said Piper. “The largest will now ask for between 12 and 24 months’ notice to change their systems and processes.”
Finding an answer to this is a little more difficult. Monteith admitted that asking for extra time tends to be the go-to remedy for situations like this, but in this case, “the start date was put back by a year but then time was wasted and even then we still didn’t get detail on what the rules will look like until recently”.
Although she recognised that the unlikelihood of the start date being put back again, she told the subcommittee that there needs to be a real assurance from HMRC that the enforcement is going to be proportionate because “we don’t want to see any draconian methods taken by some officers”.
It was suggested by the subcommittee that these issues could be resolved through a bedding-in period. Riccomini agreed that there is a bedding period with every change but we’re still seeing the effects of the public sector rollout in 2017 are still being felt. “It seems this change into the private sector which is an entirely different animal altogether is being railroaded in when we don’t know what the outcomes from the public sector are,” she said.
It’s too early to properly grasp how the off-payroll reforms have affected the public sector, said Riccomini. But, she added, “we know lots of contractors left the public sector to go work elsewhere and they’ve had terrible troubles with resourcing and recruiting – NHS had a lot of problems.”
ACCA’s Piper also recalled reports where 31 out of 32 contractors walked off a job at the Ministry of Defence. When asked about the likelihood of blanket decisions spilling into the private sector, Piper highlighted the stances of Barclays, RBS and GSK no longer hiring contractors. “They are managing their risks that way by simply pulling out of the sector altogether,” he said.
The CEST tool also came under fire. When asked by subcommittee’s Andrew Tyrie if it was fit for purpose, Monteith quickly retorted: “the CEST tool is a blunt instrument”.
“If it were easy to have a set of tests that could determine someone’s employment status accurately it would have been done, she said. “We’ve worked in this area with HMRC and we’ve never really got something that works.”
The subcommittee wasn’t the only time Westminster felt the effect of IR35 last week as 150 freelancers and contractors organised a protest outside parliament to call for halt to the off-payroll reforms.