The IIM has responded to the HMRC consultation request for off-payroll (IR35) regulations review & early impact of the 2017 public sector changes made.
HMRC called for responses to its continued desire to reform off payroll regulations, based upon the experience of changing the way the public sector had to adopt the department’s required approach in 2017.
The consultation request has been positioned with a particularly narrow view being defined for responses which asks for input simply to comment on the existing set of regulations and how to improve and apply them to the private sector, based on public sector experience to date. The HMRC paper can be found here.
The IIM has responded to the request and submitted its response which can be read here:
As you would expect, we have not felt too constrained by the tight remit on the response required. However we have ensured that HMRC can see comment on the current rules, our thoughts on the issues and suggestions of how to make life easier for all concerned.
Key points made are:
- It is far too early to be able to properly review the 2017 public sector changes, not least because there is no information on the tax take (NICs) for the year.
- It remains unacceptable to require a client to determine the supplier’s (interim’s) company tax status, as has been imposed in the public sector changes.
- Members have expressed concerns over adopting the prescribed way of working in the public sector and have refused work on this basis.
- The impact for the interim’s client is not one of quantity, but quality of outcome.
- We included a summary of the over 1000 responses received from our recent industry survey which strongly supported the very negative view of the off payroll (IR35) regulations and how they are applied, throughout the profession (public, private and third sectors).
- The way the regulations have been introduced and changed has led to an enormous credibility problem throughout the whole freelancer spectrum of working, not least at the high end where interims operate.
- There are better and fairer ways of ensuring the HMRC tax take is not adversely impacted, which could include extending the VAT application along much more of the freelancer operating spectrum. This operates effectively now and would be easy to implement, keeping tax status and compliance responsibility within the relevant service company.
- The so called CEST tool – the HMRC on line test questionnaire to determine tax status for any particular assignment or work to be/being undertaken is not fit for purpose.
- The obvious and ideal way of determining tax status is to refer to the supplier contract between client and interim (freelancer), including any third party intermediary. The contract, of necessity, needs to take account of all aspects of tribunal and court judgements that establish all relevant principles of engagement for off payroll working. Associated other paperwork such as invoicing, VAT returns, assignment outputs reviews, company annual reports, personal tax returns, client references and so on can all be utilised to confirm how the contract was played out in practice. This is all real time, could include HMRC in copy for their information and review, where they do not have the information to hand already. This would be the basis for any questions that may arise if HMRC were not clear about the status as defined in the contract, real time, dependent upon how rapidly HMRC could respond. This would overcome their concern that currently they cannot review the tax situation quickly enough relative to the timing of the contract as all information is handled well after the event from their perspective.
- The reason for off payroll regulations to exist, from the interim’s perspective have virtually vanished as a result of dividend taxation changes by the current and immediate past Chancellors of the Exchequer.
- For professional interims, who already pay VAT, corporation tax and PAYE (including own company employers and employee’s NICs), causing further disruption through IR35 is unhelpful and generates a significant and vastly disproportionate burden to ensure compliance is seen to be followed.
Many organisations have responded to the consultation and no doubt you have seen a number of these circulated in the wider public media. The strength of response is clear. Whether HMRC actually listen or plough on regardless remains to be seen.
Meanwhile, the IIM will continue to do its best to represent the needs of our members and the profession at large to the best of its ability.