HMRC’s consultation on private sector IR35 reform closed for comments on 10 August, and experts have been making their responses public.
In the consultation the tax authority says that extending public sector IR35 reform to the private sector is its 'lead option' - the main route they want to go down for tackling non-compliance in the private sector.
Now the consultation has closed, several groups have made their feelings about that proposal clear.
The Association of Independent Professionals and the Self-employed (IPSE) says “don’t do it, and definitely don’t do it anytime soon.”
IPSE follows that with several recommendations, its top one being that HMRC should ‘abandon’ extending public sector reform completely.
If the tax authority does forge ahead, IPSE warns it should explicitly rule out implementing new rules in 2019. This is so it can solve ‘technical problems’ from the public sector rollout.
IPSE’s other recommendations include a call for agreement that the Check Employment Status for Tax (CEST) tool actually works, and that SMEs and micro-businesses are exempt from new rules.
CEST has regularly come under fire for giving inaccurate results, and it also doesn’t take a key piece of case law into account when making assessments.
“HMRC should improve their own efficiencies, make use of the powers already afforded to them, and follow their own code of conduct in protecting taxpayers rights...”
Tax advisor group Qdos have considered how compliance can be improved without the need for large-scale ‘disruptive’ reform.
They say HMRC should properly observe their own Litigation and Settlement Strategy (LSS) and code of conduct during enquiries. Qdos also think HMRC have more than enough information to hand (tax returns, quarterly reporting and Connect), which they can use to spot high-risk cases earlier.
Qdos interestingly suggest that HMRC give up on cases where there’s less than a 50 per cent chance of success. They say this should waste less money, time and resources.
This could give HMRC focus, as their track record of winning IR35 cases is patchy at best. Contractor Calculator recently pointed out that since April 2010, they’ve only won one case out of 10.
The online accountancy firm says “new rules, if introduced, should not apply to the smallest private sector businesses.”
Recognising that private sector reform could be disruptive, Crunch suggests that the new rules should only apply to businesses with a turnover of more than £50 million. This should make sure that only businesses with the ability to follow the rules need to do so.
Public sector bodies like the NHS and TfL have admitted to struggling with reform, saying numerous projects have been delayed. Crunch would clearly like to see that this isn’t repeated in the private sector.
Like most other groups, the accountancy firm suggests a long lead time before new rules are introduced (at least 18 months) and a more thorough evaluation of the impact of reform in the public sector.
The Freelancer and Contractor Services Association (FCSA) detail an alternative option for increasing IR35 compliance: “The Enhanced Reporting and Enforcement solution will allow Personal Service Companies (PSCs) to retain responsibility for their IR35 status, as they currently do, albeit with an obligation of reasonable care.”
This solution would require end-hirers to secure their labour supply chain, with the contractor, feepayer, and intermediaries all sharing information.
This information can then be reported quarterly to HMRC, making it easier for them to target non-compliance and make accurate risk assessments.
The FCSA’s response goes on to call out ‘inaccurate’ HMRC figures and assumptions.
The Chartered Institute of Taxation (CIOT) also feels that better data sharing with HMRC is the best way of tackling non-compliance.
Under the CIOT’s proposal, the contractor would still be responsible for reporting their IR35 status. But they say that businesses should electronically report payments made to the personal service company, along with their view on whether the personal service company should be applying IR35.
The CIOT claims that combining this with an expanded set of questions about personal service companies on workers’ tax returns would allow HMRC to follow up with the contractor to see if they’ve applied IR35.
If the personal service company is found to be non-compliant, then they would be hit with harsher penalties – and a joint liability for missing PAYE/NIC payments. This should act as a deterrent and encourage compliance.
Two days after HMRC’s consultation closed for responses, Contractor Calculator dug out comments made by Philip Hammond in 2001.
Back then, the current Chancellor said that “one reason why the Government’s IR35 initiative has been so damaging and destructive is the fact that it has hit at the most flexible part of the economy.”
Contractor Calculator CEO Dave Chaplin is encouraging contractors to write to their MPs, to get them to ask why the Chancellor has changed his mind.
A lot of groups are in agreement that HMRC should at least delay rollout of private sector reform until they can assess its full impact on the public sector.
And with HMRC’s lead option coming in for overwhelming criticism, how will they respond now? As always, we’ll keep you updated.
Did you respond to HMRC’s consultation? Let us know in the comments below.
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