The "Off-payroll working in the private sector" consultation (mentioned in our June Newsletter) is now closed. Government will now read the submissions made by interested parties (e.g. CIPD, ICAEW, APSCO, PRISM, CBI) and will consult with HMRC before deciding whether or not to change the IR35 landscape like it did last year in the public sector.
We have read many of the submissions and have attended round table meetings with HMRC, agencies and accountancy providers and it is clear that, HMRC apart, very few people think that it is a good idea to change the law in the private sector.
HMRC's position can be summarised as follows:
- There is widespread non-compliance with the IR35 rules in the private sector
- It is too difficult for HMRC to enforce the current rules
The changes in the public sector were a success in that:
- compliance improved
- there was a good understanding of the rules by Public Sector bodies
- there was minimal disruption caused
- there were few additional costs for the public sector
- the CEST (online IR35 test) tool worked well
It is a good idea to make the same changes in the private sector. HM Treasury needs more money from contractors and sooner rather than later. Accepting that there is some non-compliance with the IR35 rules and that the Treasury needs money, the submissions we have seen directly contradict HMRC's assertions in that:
- Public Sector bodies made blanket decisions rather than looking at individual cases because it was either too time consuming or difficult to reach individual decisions
- There was little understanding of the IR35 rules in the Public Sector (particularly amongst those making hiring decisions). This will be much worse in the private sector particularly amongst small business where there is virtually no knowledge of how IR35 works
- There was a cost increase in the public sector. One survey conducted found that 91% public sector clients reported a cost increase
- The take home pay of many contractors who were outside IR35 went down
- The CEST tool does not reflect case law in particular in relation to the rules on mutuality of obligation and it needs to be updated if it is to be used in the private sector
- Software used by many companies will not cope with the complex tax calculations and many companies will find themselves in breach of tax law without the ability to put things right
PayStream is preparing for the potential changes and will be in a position to support contractors with IR35 reviews and advice as well as solutions to help minimise risk for agencies.
Obviously no decisions have been made by Government as yet and we will keep you updated as to any developments.