Ongoing issues with off-payroll rolloutby
Consultation responses to the draft Finance Bill 2019-20 highlight the need for further clarity and guidance if the off-payroll rules are to be successfully implemented in the private sector.
The draft legislation within Finance Bill 2019-20 extends the 2017 IR35 public sector reforms (now referred to as ‘off-payroll’), such that medium and large-sized organisations in the private sector will become responsible for assessing the employment status of an individual who provides services through an intermediary – typically a personal service company (PSC).
Small private sector organisations are unaffected by the upcoming changes. In such cases, the responsibility of determining whether IR35 is in scope will remain with the worker.
Following the close of the consultation on the Finance Bill clauses, the ICAEW and CIOT released their comments on the draft off-payroll working legislation.
HMRC should have more time to prepare
In its response, the ICAEW voiced a number of concerns regarding the challenges of an April 2020 start date and maintained that the new rules should not be introduced until 6 April 2021.
While it’s not the first time the ICAEW has recommended the new regulations be delayed until 2021, the institute’s latest response has suggested that even HMRC needs more time to get ready for the upcoming changes.
Specifically, the ICAEW argued that businesses, software developers, as well as HMRC, should have more time to properly prepare “on the basis of enacted legislation, resolved operational issues and final IT specifications, CEST and guidance, and an early announcement made to this effect”.
The ICAEW commented that HMRC’s check employment status tool (CEST) still does not deal adequately with tests such as the mutuality of obligation, and the issue remains whether an updated version will be ready in time for stakeholders to assess their workers’ employment status.
Separately, it’s worth noting that HMRC has stated that an enhanced version of CEST will be available later in 2019. While this is sooner than expected, it’s debatable whether stakeholders will have enough time to test all relevant engagements that may fall within the remit of the new off-payroll rules.
More detailed guidance needed
The ICAEW also criticised the wording of the draft legislation, calling the proposed legislation ‘overcomplicated’, ‘Delphic’, and even ‘the antithesis of the spirit of the Tax Law Rewrite project’. The ICAEW commented that the draft legislation contains gaps that require extensive guidance to fill.
This issue of the need for guidance has also been highlighted by the CIOT.
In the CIOT’s response to the draft legislation, the institute welcomed HMRC’s recent introductory guidance (published in August 2019) in respect of the upcoming April 2020 changes, but also noted that detailed technical guidance is still needed and should be published as soon as possible.
For example, mention was given to:
- The need for better guidance in relation to ‘gateway’ conditions, such as when the new off-payroll working rules apply, when the existing IR35 regulations continue to apply, or when IR35 does not apply to an engagement.
- The need for technical guidance to help clients, agencies, and workers/PSCs understand which engagements (existing and future) will be in scope of the new rules.
The ICAEW and CIOT provided wider comments on the draft legislation, with both suggesting that, in cases where a worker or deemed employer wishes to dispute a status determination statement (SDS) with the client, a time limit of 45 days should be introduced following receipt of the SDS.
Currently, the 45-day limit refers to the timeframe that clients have to respond to a worker or deemed employer following receipt of a status determination disagreement.
Both institutes also took issue with the proposed new ITEPA 2003, s 688AA. This section allows HMRC to transfer a PAYE liability, where there is non-compliance in the labour supply chain, by means of regulations which are subject to much less scrutiny in parliament.
The CIOT proposed that where reasonable care has been taken by the client or agency to ensure the integrity of the supply chain, the tax liability should not transfer to them. The ICAEW went a step further and suggested that the powers in ITEPA 2003, s688AA be removed, arguing that “a power of this kind should be the subject of primary legislation so that it receives proper scrutiny by Parliament”.
Sticking plaster solution
The ICAEW labelled the draft legislation a “sticking plaster solution to an 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.”
While this view is certainly not unique among tax and accounting professionals, it appears that, for the time being, the proposed changes to off-payroll working in the private sector is the best solution HMRC has to offer.
As such, it’s vital that HMRC, at a minimum, issues further guidance in the coming months so that affected stakeholders can prepare for the April 2020 rollout.