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Government publish consultation on off-payroll working rules

Government publish consultation on off-payroll working rules

During last October’s Autumn Budget, Chancellor Phillip Hammond announced that the current public sector off-payroll working rules will be extended into the private sector in April 2020. This week, HMRC published their long awaited consultation document for off-payroll working rules, highlighting a number of key points for consideration. The consultation, open until Tuesday 28th May, has provided an insight into the shape of the reforms. Contracting Scout has considered some of the key points made.

One of the key considerations highlighted in the consultation is that HMRC is seeking to improve communication of the IR35 determination to the contractor. Under the current system, the client does not have to directly inform the contractor of the determination, which is often passed down the supply chain via the agency or other intermediary. However, HMRC has made clear their intention to legislate that the client must provide the contractor with the determination for the engagement. It is hoped that the improved communication will benefit not only the contractor, but everyone within the supply chain.

The consultation states that when a client and a contractor disagree about the employment status, a client-led disagreement procedure should be in place. HMRC stresses that this will result in more workers and clients reaching the correct IR35 determination in real time. However, in reality, it places a greater administrative burden on the client. It also places the contractor at an obvious disadvantage as they cannot raise an appeal with an independent party. However, they are at liberty as to whether or not they work on the contract. Whilst improved communication remains a priority for HMRC, little has been done to improve the CEST tool. Used by the client to determine the IR35 status of the contractor, the tool has been continually criticised as unfit for purpose. HMRC has stated that they are continuing to work with stakeholders to improve the CEST tool and ensure that it meets the diverse needs of the private sector. Any enhancements will be tested before the full roll out of the reform in April 2020.

The consultation does little to address the discrepancies regarding tax and employment rights. It has been found that some contractors operating inside IR35 are unable to claim employment rights despite being charged the same tax as employees. HMRC chooses not to address this in the consultation, insisting that the focus is on tackling the non-compliance that is resulting in ”substantial costs” to the Exchequer. With the emphasis on improving compliance, the consultation notes that the responsibility for tax and NICs will lie with the last UK-based entity in the supply chain. The document also confirms the intention to scrap the 5% expense allowance in line with the public sector reforms.

Whilst the government acknowledges the “importance of providing organisations with sufficient time to prepare for and implement the reform,” questions have been raised regarding the feasibility of doing this by 2020. Tom Hadley, Director of Policy and Campaigns for the Recruitment and Employment Confederation (REC), has explained that “the government’s timeline doesn’t leave businesses the recommended 18 months to prepare for the new rules.” Without sufficient time to prepare, it’s feared that all parties involved will be unable to smoothly navigate the reforms.

There has already been widespread criticism of the consultation document, with a number of key organisations including The Association of Independent Professionals and the Self-Employed (IPSE) and REC speaking out. Concerns have been raised over the timing of the reforms given the current uncertainty of Brexit. IPSE’s Deputy Director of Policy, Andy Chamberlain, commented that “The UK’s greatest competitive advantage is its flexible labour market. This proposal will dramatically restrict that flexibility and starve UK businesses of the freelance talent that they need to get work done. The government should finally open its ears to the experts and scrap the dangerous reforms to IR35 once and for all.” Responses to the consultation will be published later this year.

If you have any questions about the off-payroll working rules get in touch with our team today.

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