HMRC have issued a briefing on the reforms to the Off-Payroll working rules which will be introduced to the private sector next April. The briefing reiterates that the reforms, which will see the responsibility for IR35 assessments shift from the limited company contractor to the client engaging their services, are needed to improve compliance.
In a statement that somewhat misses the point, HMRC observes: “This is how employment status for tax is decided for the vast majority of people who do not work through their own company.” They also add, seemingly as justification: “This reform will provide £3 billion for essential public services, including the NHS, over the next 4 years.”
While it’s unlikely that anybody would begrudge increased funds for public services (especially the long-suffering NHS, which was crippled by walkouts when public sector contractors were hit with blanket rulings) it’s difficult to argue that this should be at the expense of limited company contractors.
HMRC are still reiterating their line that: “This reform does not prevent people from working through their own limited companies and does not affect the self-employed. Contractors who are following the existing rules correctly will feel little impact.” However, blanket rulings from many of the top 100 FTSE businesses ahead of next April would indicate the contrary.
These companies, including many of the largest banks such as Barclays, Tesco Bank, Morgan Stanley and Lloyds, have all committed to a temporary contingency measure not to use limited company contractors. The blanket decision allows them to ‘opt-out’ of making IR35 assessments by requiring all their contactors to go PAYE.
Although the move has been criticised by many as short-sighted, businesses are responding to a lack of adequate guidance and a flawed assessment tool by attempting to mitigate risk. According to the reforms, the end client can be held liable for incorrect assessments, as well as tax and NICs if HMRC cannot claim them from other parties in the supply chain.
The briefing continues: “HMRC has put various measures in place to help businesses and other organisations…. including workshops, guidance, online learning, round tables and an enhanced online tool that will help them make the right decisions.” Clearly businesses who are issuing bans on limited company contractors do not feel as confident as HMRC about their ability to make accurate assessments.
While the briefing confirms that HMRC will launch an enhanced version of the CEST tool before the end of the year, it also adds, “Customers don’t need to wait for the enhancements to go live: HMRC stands by the results given by the tool now, provided the information entered is accurate and it is used in accordance with our guidance.”
HMRC stand on CEST is obviously conflicted; if the tool is accurate, then why is it being ‘enhanced’? If the existing tool was ‘rigorously tested against case law,’ then why has HMRC lost the recent majority of tribunals where the CEST verdict was shown to be inaccurate? Lastly, while the treasury states that “HMRC will stand by the result produced by the tool provided the information input is accurate and the tool is used in accordance with our guidance,” this leaves contractors high and dry when this very guidance is proven to be inadequate.
While the government published the draft legislation as part of the Finance Bill in July, the legislation is yet to be finalised. If you’ve been affected by blanket assessments or feel that you would benefit from impartial guidance on the Off-Payroll changes, Contracting Wise have a range of established solutions that can help you. To speak to a member of our team, call: 0203 642 8679