A Professional body has urged caution over Off Payroll rollout towards the private sector
Responding to last week’s Budget announcement, The Chartered Institute of Taxation’s (CIOT) main criticism of Philip Hammond’s Red Book was the number of surprise measures that were included with seemingly little or no consultation, with some having immediate effect.
In this context, the announcement that the extension of the Off Payroll IR35 reform to the private sector would be delayed by one year was welcomed by the professional body, who believe adequate guidance is still lacking from HMRC, and, specifically, that the taxman’s online employment status tool CEST needs significant improvement in order to be effective.
Colin Ben-Nathan, chair of the CIOT’s Employment Taxes Sub-Committee, said: “Deferring this extension until 2020 will provide businesses with time to implement the changes and, crucially, will provide HMRC time to consult on and publish adequate guidance to help businesses determine whether the off-payroll rules, commonly known as IR35, apply to one or other of their contractors.
“But unless the government also acts to clarify the underlying employment status issue, disputes between contractors and business could keep the courts very busy in the years ahead.”
The CIOT also indicated concerns over the existing Off Payroll implementation in the public sector, rolled out in 2017. Substantiating anecdotal accounts from contractors, they warned that many Public Sector Bodies are struggling with Off Payroll, with some resorting to a “broad brush” approach and taxing all limited company contractors through PAYE: “it seems that in some cases public sector bodies are automatically applying the IR35 rules to contractors working through their own personal service companies (PSCs) without assessing whether or not those rules should be applied on a case-by-case basis.”
Given the problems that these large organisations are having with the extra administrative burden of Off Payroll, the exemption for smaller private sector clients was also welcomed, with the Institute noting that the “onerous” costs would have been disproportionate for small businesses.
Particular criticism was reserved for CEST, HMRC’s online IR35 status checker, which is believed by the Institute to be throwing “false positives” – the implication clearly being that the tool is biased towards giving an “inside IR35” result. In addition, they voice concerns over the lack of guidance currently available to engagers of contractors with which to make IR35 status assessments. A lack of clarity over the IR35 tests will be likely to push clients towards an over-reliance on CEST.
Determining an individual contract’s IR35 status is not straightforward as there is no statutory test for employment – instead an assessment must use the precedents set by case law from the employment and tax tribunals. There are various criteria which may carry differing weight in different situations, and each contract is supposed to be assessed on a case by case basis. The complexity in making such assessments is partially the reason for shifting the responsibility for making them to clients and away from contractors themselves.
The CIOT’s main criticism of the Budget was reserved for the number of tax measures announced as “done deals” without having been consulted on, and for excessive “tinkering”, which itself is believed to be due to the need to fix previously rushed out measures. Examples this year include the changes to private residence relief and enterprise reliefs such as the Structures and Buildings Allowance.
8th November 2018.