Contained within the House of Lords Select Committee on PSCs report are 16 recommendations which they hope will improve IR35.
During the Committee’s investigation HMRC could not provide reliable figures that demonstrated the risk to the Exchequer that IR35 protects. The department should therefore undertake and publish a detailed assessment of the current Exchequer protection figure and of the costs that contractors incur in having to deal with IR35. This will then highlight whether or not IR35 is having the desired effect and if it is proportionate. Furthermore, if such an assessment proves IR35’s worthiness then the abolition of the legislation, as proposed by the Office of Tax Simplification (OTS), would be unwise.
This was another of the OTS’s proposals although it is a much more complex and longer term aim. It should not however be dismissed as being unattainable and the Government should re-examine combining income tax and NIC. Should such a move be achievable it could well spell the end for IR35.
The Committee could not understand why HMRC include the ‘service company’ question on the personal self assessment tax return and in the RTI end of year process if they do not consider it to be important or insistent on it being answered. HMRC should therefore decide whether they require complete and accurate responses to the question.
Should HMRC value the information gleaned from the question then it should be compulsory to answer it with penalties being levied for incorrect answers and non-compliance. However, to properly answer the question taxpayers should be properly informed by supporting guidance notes.
If, on the other hand, the question serves no real function then it should be removed entirely.
HMRC were unable to convince the Committee that their resources were adequate to properly police the IR35 legislation and they were unable to produce any accurate figures for cost:yield ratios. The Revenue should provide better information on the costs involved from their compliance efforts and administration and justify such in relation to the tax yield.
It was concluded by the Committee that many individuals take a risk that HMRC will not review their employment status and that this attitude is borne out of the decreasing number of IR35 enquiries.
HMRC’s contract review service should be better publicised and the department should explore ways to encourage contractors to use the service. Unless the Revenue can ever persuade freelancers that this service is impartial and confidential and completely removed from the IR35 compliance team then this will be a pointless exercise. Is this simply a pipe dream?
Whilst BETs can never provide absolute certainty to contractors about their IR35 status in its current state it remains unsatisfactory and needs further improvement to provide greater certainty.
Membership of the IR35 Forum should be reviewed and HMRC should demonstrate that they take on board the feedback they receive from this group.
A short guide should be published, in both digital and paper form, that sets out the basic differences between employment and self-employment and should be made available to all those working in industries where intermediaries are prevalent.
Part of the LPC’s remit should be to consider the use of PSCs and Umbrella companies by lower-paid workers and the implications for pay, employment rights and statutory entitlements.
To combat the abuse of expenses dispensations by umbrella companies HMRC should ensure that appropriate enforcement action is taken to curtail this and better monitoring to ensure that dispensations are being managed correctly.
Better screening should be carried out by HMRC when granting and renewing dispensations.
‘Off-payroll ‘ arrangements should be reviewed to ascertain if they are used in all areas and whether the rules should be widened to include those earning less than £58,200 p.a.
HMRC should take a leading role in ensuring and monitoring that the ‘off-payroll’ rules are applied consistently. Does the department really have the time and resources to take this on? I don’t think so.
Given the short time frame this wasn’t a bad effort by the Committee as they have pointed the spotlight on a number of areas that have irked contractors for some time. Will HMRC stand up and take notice though?