Responses to HMRC’s consultation on extending the off-payroll working (IR35) rules to medium-sized and large businesses in the private sector from April 2020 include suggestions ranging from improving HMRC’s ‘check employment status for tax’ (CEST) tool, to delaying implementation until April 2021.
The CIOT has called for improvements to HMRC’s ‘check employment status for tax’ (CEST) tool by October 2019 at the latest, if private sector employers are to operate IR35 rules effectively from April 2020.
This follows a string of recent IR35 cases decided against HMRC at the First-tier tribunal and HMRC’s own acceptance that the CEST tool only provides a determination in 85% of cases.
The CEST tool ‘needs to be significantly improved if the rollout of the off-payroll working rules to the private sector is not to lead to uncertainty and protracted disputes over tax status between businesses and workers’, the CIOT said in its response.
Colin Ben-Nathan, chair of CIOT’s employment taxes sub-committee, said: ‘Until CEST takes proper account of mutuality of obligation, multiple engagements, contractual benefits such as holiday pay, maternity/paternity pay and whether someone is in business on their own account, it is unlikely it will be able to reach the right decision on status’.
The CIOT believes the proposal for HMRC to transfer the PAYE/NICs liability of a defaulter further down the supply chain back to the first agency in the chain or, failing that, to the end client, would be unfair without offering the defence of reasonable care.
The CIOT recommends a review of the off-payroll in mid-2022, after a full year of operating the new rules in the private sector and following the January 2022 self-assessment returns deadline.
The Association of Taxation Technicians (ATT) suggests improvements to the CEST tool and additional resourcing for a dedicated HMRC helpline would help avoid any tendency for engagers to make blanket decisions to classify workers as employees without properly considering all the relevant factors.
The Law Society expects the new rules to be ‘problematic in practice’ and would like to see a specific exclusion from liability where ‘appropriate procedures and systems’ are in place and followed in relation to status determinations. Other suggestions from The Law Society include:
a system of advance rulings from HMRC or, at the very least, additional investment in the CEST tool to make it fit for purpose; and
a system of registration permitting gross payment for compliant taxpayers, along the lines of the non-resident landlord scheme and construction industry scheme.
Pinsent Masons believe the April 2020 timescale is too ambitious and should be delayed until April 2021 at the earliest. ‘With publication of draft legislation not expected until the summer, businesses with complex supply chains and large flexible workforces will struggle to meet an April 2020 deadline to prepare properly for the reforms, including reviewing and possibly altering their IT and compliance systems’, said Penny Simmons, a lawyer at Pinsent Masons.
Simmons said the proposed changes could have a disproportionate impact on the infrastructure and energy sectors, which rely heavily on contractors and temporary workers, often engaged through personal service companies. ‘Many of these contractors have highly specialised skills and it is crucial that these skills can be easily circulated amongst businesses, particularly in project-based and fast-growing industries’.
Responses to HMRC’s consultation on extending the off-payroll working (IR35) rules to medium-sized and large businesses in the private sector from April 2020 include suggestions ranging from improving HMRC’s ‘check employment status for tax’ (CEST) tool, to delaying implementation until April 2021.
The CIOT has called for improvements to HMRC’s ‘check employment status for tax’ (CEST) tool by October 2019 at the latest, if private sector employers are to operate IR35 rules effectively from April 2020.
This follows a string of recent IR35 cases decided against HMRC at the First-tier tribunal and HMRC’s own acceptance that the CEST tool only provides a determination in 85% of cases.
The CEST tool ‘needs to be significantly improved if the rollout of the off-payroll working rules to the private sector is not to lead to uncertainty and protracted disputes over tax status between businesses and workers’, the CIOT said in its response.
Colin Ben-Nathan, chair of CIOT’s employment taxes sub-committee, said: ‘Until CEST takes proper account of mutuality of obligation, multiple engagements, contractual benefits such as holiday pay, maternity/paternity pay and whether someone is in business on their own account, it is unlikely it will be able to reach the right decision on status’.
The CIOT believes the proposal for HMRC to transfer the PAYE/NICs liability of a defaulter further down the supply chain back to the first agency in the chain or, failing that, to the end client, would be unfair without offering the defence of reasonable care.
The CIOT recommends a review of the off-payroll in mid-2022, after a full year of operating the new rules in the private sector and following the January 2022 self-assessment returns deadline.
The Association of Taxation Technicians (ATT) suggests improvements to the CEST tool and additional resourcing for a dedicated HMRC helpline would help avoid any tendency for engagers to make blanket decisions to classify workers as employees without properly considering all the relevant factors.
The Law Society expects the new rules to be ‘problematic in practice’ and would like to see a specific exclusion from liability where ‘appropriate procedures and systems’ are in place and followed in relation to status determinations. Other suggestions from The Law Society include:
a system of advance rulings from HMRC or, at the very least, additional investment in the CEST tool to make it fit for purpose; and
a system of registration permitting gross payment for compliant taxpayers, along the lines of the non-resident landlord scheme and construction industry scheme.
Pinsent Masons believe the April 2020 timescale is too ambitious and should be delayed until April 2021 at the earliest. ‘With publication of draft legislation not expected until the summer, businesses with complex supply chains and large flexible workforces will struggle to meet an April 2020 deadline to prepare properly for the reforms, including reviewing and possibly altering their IT and compliance systems’, said Penny Simmons, a lawyer at Pinsent Masons.
Simmons said the proposed changes could have a disproportionate impact on the infrastructure and energy sectors, which rely heavily on contractors and temporary workers, often engaged through personal service companies. ‘Many of these contractors have highly specialised skills and it is crucial that these skills can be easily circulated amongst businesses, particularly in project-based and fast-growing industries’.
