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.

15th Feb 2020
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House of Parliament

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.

Replies (19)

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By memyself-eye
16th Feb 2020 11:05

Poorly thought out, hastily introduced, 'customers' with no clue how to operate it and the introducing body (HMRC) promising all will be revealed in the future..

Sounds just like MTD!

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By G Webber CTA
17th Feb 2020 10:34

Unexplained policy; dodgy statistics; unanswered questions; HMRC following dogma and not the law; fear of draconian application of rules nobody understands; change forced upon commercial businesses for tax reasons.

Where have we seen all this before?

Loan charge.

And that has ended so well for HMRC.

Do they never actually listen?

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Replying to G Webber CTA:
By djtax
18th Feb 2020 12:45

'do they never actually listen'? Sadly it was quite clearly demonstrated during the lengthy debates on MTD VAT, prior to its introduction, that HMRC never do listen, with HMRC disregarding just about everything that went into the House of Lords report.

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By Angus Ogg
17th Feb 2020 10:41

21 years since its introduction by Gordon Brown, IR35 still causing issues.

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By ColA
17th Feb 2020 10:42

Probably only HMRC skeleton staff as the bulk of focus will be on shoring up HMG in preparation for 31 December 2020 fiscal and legislative cliff-edge on Brexit extension expiry.

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By pauljohnston
17th Feb 2020 11:13

Each time so sad. What HMRC dont realise is that all accountants know that tax has to be raised somehow. We are not politicans and most dont want to be. However if we were asked as to the best way to implenment a new/revised tax it would work properly and fairly. Civil servants just dont have that experience. But would a progressive chancellor work that way?

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Replying to pauljohnston:
By flightdeck
17th Feb 2020 14:36

Good post. Better consultation with the coal face would help them enormously.

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By Ian McTernan CTA
17th Feb 2020 11:39

Too late. Several clients are being put on PAYE or forced into umbrella companies this month as the contracting companies won't take any chances and are enforcing IR35 rather than be bothered looking at the whole situation.

Another fine mess from HMRC.

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By AndrewV12
17th Feb 2020 11:42

What do you associate with a Conservative Government, (what they flag up and promise anyway), lower taxes, less red tape, more freedom for the individual.

Lets review what they actually do, higher Vat, crippling small business just over £85,000, cranking up IR35, and proposed more paperwork regarding brexit.

If Jeremy Corbin had come up with all of the above, the policies would have been described as relevant to counties behind the iron / bamboo curtain.

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Replying to AndrewV12:
By Angus Ogg
17th Feb 2020 11:53

And screwed the Buy-to-Let landlords.

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Replying to Angus Ogg:
By AndrewV12
17th Feb 2020 12:08

Lets just have a quick review of industries screwed over by the Conservative party;-
The potteries
A lot of small businesses
and now accountancy, who's next
The only sectors that have done well under the Conservatives are Banking, consultancy, and finance.

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By Nefertiti
17th Feb 2020 11:59

So continues the saga of the tyrannical HMRC who are determined to squeeze every last penny out of each and every contractor in the whole of UK. In their quest to enrich the government with our taxes, they don't care that the government wastes it by the billions after on useless ventures and military spend (in the protection racket called NATO run by USA).

I wouldn't mind paying a bit more in taxes if I actually saw the money put to good use like the NHS, providing warm and comfortable shelters for our millions of homeless who live on the streets and in their cars but seeing how our incompetent government squanders our taxes, I simply hate the HMRC and the government. They no longer care for their citizens - simply busy filling their own pockets. I long for a revolution when we can get rid off these vile scum bags.

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By tedbuck
17th Feb 2020 12:28

The strange thing about all this is that George Osbourne actually sorted the majority of the problem with dividend tax so that the difference isn't enormous unless profits are left undistributed. So why does HMRC insist on wrecking the contracting economy (they use them themselves) just to save a few pounds here and there.
So less contractors, less accountants doing their accounts, less flexibility in the workforce, less people in work (because some Companies cannot afford the 'workers rights' of an employee), so less productivity, so less profits, so less Corporation Tax collected and are we not back to square one? Not the sign of a thinking administration, but we know that HMRC can't see further than the nose at the end of its face viz the loan charge previously mentioned.
You only have to look at the civil engineering sector to see how incompetent the UK is. Roadworks near my home to improve traffic flow are so slowly done that a couple of blokes with shovels could do better. Plenty of people standing around in groups but nobody actually doing anything. No wonder the Chinese can come in and say they can complete HS2 in 5 years. Perhaps they actually work.

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By norstar
17th Feb 2020 15:02

As others have suggested, it's too late. Instead of the supposed due diligence, end clients are simply using their size to pressure contractors into Umbrella or PAYE positions. Personally, I think the CEST tool is pointless because no one is using it.

The end result could be argued to be good for the Government because the contractors are all moving into PAYE/Umbrellas. However objectively speaking, I've found that it means that fewer clients are going to put money into pensions (PAYE and Umbrella pay the Auto enrolment contributions only) which I think will cause a long term pension income issue for the economy, and some of my contractors report that their clients are cutting back on investment in projects and staff due to the additional cost of labour. The contractors themselves have less income so will spend less in the economy.

All a bit short termist really, and as others commented, the introduction of dividend tax narrowed the gap significantly anyway.

Personally I would have advocated a change in tax bands to dissuade tax planning around higher rate limits etc and I think that the economy could have benefited from the flexibility of contracting whilst not losing the tax revenue but what do I know with only 20+ years of practice experience...

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By drakeltd
17th Feb 2020 22:03

Within IR35 how would an invoice be treated if a contractor works overnight 5-6/04/2020

Their work status presumably changes on the stroke of midnight. But I’m unsure of the Tax consequences.

Also if the contractor working at midnight trips over a trailing cable, who pays the sick pay? The contractors company or the client company?

If a contractor finishes working just before midnight, then leaves the building and is walking to the car, just after midnight, still on the clients premises, but is injured.
Was the contractor on his way back to his office or was the contractor, now an employee, on his way home?

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By drakeltd
17th Feb 2020 22:12

I have come across 2 sectors of the economy that are also affected by IR35, which I was unaware of: aeronautical engineers servicing planes to prepare for take-off;
Motorway maintenance crew members.
I believe that some couriers/delivery van drivers may also be affected, along with road haulage.
The issue seems to pervade the whole economy.
The insurance industry is probably also impacted as drivers etc working over midnight may need to have different insurance policies for before/after midnight on 05-06/04/2020.

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By ds
18th Feb 2020 13:21

I fear BoJo's term in office although starting with a frenzy will fizzle out sooner rather than later when the wheels fall off the cart. We have low productivity in the UK due to chronic under investment in infra-structure and people skills training among other ills. If the answer is to tax tax and more tax and dismantle the existing economy bit by bit, then they are doing a grand job. I have successfully contracted in technology industries under Limited Company rules for over 25 years but with these clamp downs there is little point in continuing the activity in the UK and am now looking for permanent work in Europe before the gate comes crashing down at the end of the year.

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By pauljohnston
24th Feb 2020 14:16

As many have said the tax is now at a point where there is a disencentive to work. Listing Goverment failures is easy but what has not been covered is the great inefficiencies. If these were only half fixed there would be funds either to improve them (NHS in particular) or to spend elsewhere. infrastructure has been suggested as a fix but one has to look back to Gordon Brown to see that he sacrificed this and catching up is harder to do.

My personal view is that the country has to cut its cloth considerably so that the middle erners are not squeezed. It is this collection of people who save and invest and if HM Govenment continues to tax at the current rate saving and investing will be at low levels. My hope is That Boris once he has got all the hard bits passed will then focus on this. If he does not he wont be invited to form the next government as the difference between what he has offered and what Mr Corbyn's party offer wont be different enough.

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By Thwaites
25th Feb 2020 14:28

I have just seen a payslip from a previous contractor now engaged as an employee for a public sector organisation. Employers NIC has been deducted from Gross Pay along with payroll processing charges.

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