Following the release of the Matthew Taylor Report on ’Modern Working Practices’ and the subsequent ‘Employment Status Consultation’ both released in February this year, a consultation document on reforming IR35 within the private sector was finally released on 18th May 2018.
However, what many may not have expected, was HMRC’s complete disregard and ignorance of the impact of public sector IR35 reform which was implemented in April 2017.
The consultation document begins by stating that:
“There is evidence that this legislation is not working effectively, and non-compliance is widespread. HMRC estimates that only 10% of PSCs that should apply the legislation actually do so.”
It doesn’t however tell us where to find such evidence which supports this statement.
Additionally, the document states that “the cost of non-compliance in the private sector is high and growing – projected to increase from £700 million in 2017/18 to 1.2 billion in 2022/23” but the document doesn’t indicate how such figures have been projected.
HMRC considers that:
”The option to work through an intermediary, including a PSC, helps support this labour market flexibility. The public sector reform did not stop people working through these structures.”
Perhaps HMRC should explain that to the many contractors working for the NHS whom cannot work outside of IR35, not because of a CEST tool determination, but because many NHS Trusts will only allow contractors to work for them if they operate inside of IR35, regardless of their actual status.
In evaluating the effectiveness of the public sector reform, HMRC estimates that an additional £410 million of income tax and NICs has been remitted. What they fail to recognise is that some of this income will not be through ‘compliance’ particularly with those organisations opting to take a blanket approach to the legislation. No doubt HMRC deem the reform as a success as long as it sees the income rise, but let’s not forget that they are a public sector body with the aim of ensuring people pay the right amount of tax, not necessarily more tax.
Due to the number of concerns over reform of IR35 in the public sector (which although is taken very seriously, is mostly considered to be ‘anecdotal’) the Government commissioned independent research into the experiences of public sector bodies having to implement the reform.
HMRC claim that they have spent considerable time with many public sector organisations helping them to understand the rules and to ensure compliance, but let us consider the BBC and where such guidance has left them.
Many TV and radio presenters were persuaded into setting up limited companies even though they didn’t want to, and one presenter was reported as having attempted to commit suicide due to the pressure exerted over them with regard to their employment status.
As for HMRC’s CEST tool, we have an online system which does not accurately follow case law, and although it may provide an opinion in 85% of cases, there is no evidence to suggest that the correct decision is provided, confirmed following a recent Freedom of Information Request.
HMRC are keen to increase revenue by doing less work and I can certainly agree that IR35 enquiries are unnecessarily protracted affairs. However, very often in my experience this is due to the HMRC Inspector dealing with the case, and not necessarily due to any difficulty in obtaining information.
Qdos Contractor, IR35 advisory and contractor insurance provider, recently defended a client at First-tier Tax Tribunal, where the Judge upheld the appeal, recognising that the contractor (Jensal Software Limited) was under no control of its end client, who interestingly enough was a public organisation: the DWP.
The consultation document refers to ‘an entire industry advising companies on how to draft contracts which create the impression that a job falls outside of the off-payroll rules,” and appears to criticise those businesses who might be helping contractors grasp the legislation, because in this the BBC is a clear example of HMRC’s guidance having not worked, and in the case of Jensal Software we were pleased to be able to successfully defend a contractor who was correctly operating outside of IR35.
In a parliamentary debate in the House of Commons held yesterday on ‘NHS Outsourcing and Privatisation’, Jon Ashworth – Shadow Secretary of Health, stated that;
“Underfunding and lack of capacity have driven more and more NHS purchasing from the Private Sector. We have seen beds lost in NHS hospitals, which are then increasingly forced to use the Private Sector. Spending on elective treatments outsourced to the Private Sector rose from £241 million in 2015-16 to £381 million in 2016-17.”
The NHS is in crisis, hence the need for such parliamentary debate, and it would be somewhat ironic if HMRC become the straw that eventually breaks the camel’s back, particularly given that the income derived from compliance is to be ploughed back into public services.
It seems clear from the consultation document that HMRC will forge ahead with reform whatever the cost and no doubt the BBC and NHS will not be the only casualties.