Delaying the extension of new ‘off-payroll’ rules to the private sector until April 2020 should give time for HMRC to learn from the problems arising last year in the public sector, but determining a worker’s employment status remains a real challenge, say the Chartered Institute of Taxation (CIOT).
The extension, announced by the Chancellor in today’s Budget, is expected to raise over £3 billion for the government between 2020 and 2024.
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.
“We welcome the limitation of the ‘off-payroll’ changes to large and medium-sized engagers. Imposing a deduction at source model on the private sector would have hit smaller businesses with disproportionately greater administrative and professional costs than medium and larger businesses. While operating the off-payroll rules will be onerous, larger businesses are better placed to absorb the associated costs.
“We also urge HMRC to work with stakeholders to improve the operation of the existing off-payroll rules in the public sector, so that they are fit for purpose when extended to the private sector. In particular, 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. HMRC’s Check Employment Status for Tax (CEST) tool may also be creating ‘false positives’ where it adjudicates a case as caught by IR35 as it does not always adequately reflect all the factors in play and it is good that the Government is committing to improve the effectiveness of CEST. The process for challenging deduction at source also needs to be streamlined to prevent prolonged delays and uncertainty for the worker, the PSC, the public sector and indeed HMRC.
“Off-payroll working is in fact but one facet of a much broader issue of how we tax labour in the UK. The Government have consulted on the issue of employment status for labour law and tax purposes, albeit not yet publishing their conclusions. In our view IR35, the taxation of the employed v self-employed and labour law issues should all be viewed through the same lens and considered together.”
Notes for editors
1. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 18,400 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk
(Out of hours contact: George Crozier, 07740 477 374)