‘Immediate need’ to tackle non-compliance in private sector…
The latest IR35 Forum minutes held on 11 December 2017 reveal that HMRC will likely be introducing IR35 reform into the private sector as soon as they possibly can, as there is an “immediate need to consider how best to tackle non-compliance in the private sector…”
As announced in the Autumn Budget, the minutes echo that there will be a consultation process in 2018 as “the Government will carefully consult on how to tackle tax avoidance in the private sector…” along with Government-commissioned external research which will be published this year. There will also be a consultation in response to Matthew Taylor’s report on employment practices in the modern economy, considering longer term reform which the minutes confirm “are related”.
Public Sector Reform A Success?
HMRC are still attempting to flaunt the success of IR35 reform within the public sector, stating that “compliance is increasing”. In some cases, this may be true, but there will also be circumstances where a public-sector body has adopted a blanket approach to the IR35 reform, where any contractors engaged have to operate inside of IR35. This cannot be called ‘compliance’, and very often will be the opposite of compliance where contractors are forced to operate inside of IR35 to continue to work.
This issue was brought up by Forum members, and HMRC confirmed that making blanket decisions without considering the contractual terms and actual working practices is not the right course of action. However, one wonders how quick HMRC would be to challenge a blanket inside IR35 decision.
The CEST tool came under fire again for failing to consider one of the key employment status tests; Mutuality of Obligations (MOO). HMRC’s response to this was that it is already assumed that MOO exists where someone is required to take the test because MOO is necessary for a contract to exist. This in our opinion fails to grasp MOO fully, which was shared by some forum members who also challenged HMRC’s argument. HMRC advised that they would provide a “considered response” to questions over the elimination of MOO from the CEST tool.
HMRC Determined to Target Self-Employed
Forum members expressed their concerns regarding further reform simply acting as a “bolt on,” rather than properly tackling the issues over IR35 and employment status. HMRC responded by stating again that there is an “immediate Exchequer risk which needs to be addressed.” The cost to the Exchequer of non-compliance with the off-payroll rules is estimated to be £1.2billion by 2022/23.
The IR35 Forum will now become a subgroup of the Employer’s Payroll Group (EPG). In the minutes of the last EPG meeting, reform of IR35 in the public sector was mentioned, and once again was hailed as a success. HMRC stated that “IR35 protects more than £500 million…however non-compliance was estimated to cost more than £400mi in 2016/17…so far PAYE registrations and returns showed increased compliance…not seeing significant drift away from the public sector despite contractor press.”
This does not reflect the impact of the legislation and we only have to look at the NHS, with many trusts in crisis due to a lack of resources. Although IR35 reform may not be the sole reason for its current downfall, the change in legislation will undoubtedly have had a part to play and will certainly not have helped the situation. It’s worth noting that many NHS trusts are adopting blanket inside of IR35 decisions.
If there is such an immediate risk to the Exchequer, you could be forgiven for wondering what HMRC are doing about the bigger tax avoidance issues, for example those highlighted by the ‘Paradise Papers.’ It seems that HMRC are determined to roll out IR35 reform within the private sector and do not intend to delay. The consultation process appears to be more a case of dotting the i’s and crossing the t’s.
Most governments like to govern. Whatever the consequences. Raised on a loving memory of Empire, British governments adore the ecstasy of it. Even if the tinkering piles more uncertainty on the post Brexit outcome, even if it’s barely worth the candle. If a former transport secretary could announce 20 years ago that £1b “is not a lot money”, one wonders how £400m could be worth the risk today.
The smart young money will vote with its feet.
Agree with the smart young money
I have already asked Google, Starbucks, Amazon and Microsoft whether they can supply contractor agency services as I feel apart from the excellent service they will provide my tax status will be guaranteed with them.
On the other hand I am very proud that the Government is finally going to stand up to the private sector on this pressing issue…like they used to do in the British Empire.
Good luck on that one, especially when you crush the finance sector and all those banks into submission
So, the scenario is Director pays themselves below the threshold so as not to incur Employer & Employee NI (25.8%), then gives themselves a whacking big Dividend. Therefore, unless they are then using smoke and mirrors to offshore the dividend payments they still have to declare the dividends as income. Therefore, they will still be paying tax on the dividends after their personal allowance plus £2000 dividend tax relief, at 30% or the higher rate of 40%. In addition, as they now have essentially a larger amount of disposable income, they will spend it and HMRC will get a bigger amount of VAT income at 20%. I am not convinced of the £1 Billion loss to the Revenue if the complete end-to-end chain of income and expenditure is applied. Albeit there will be a time-shift as to when the Revenue actually receives the income as personal tax or VAT. In the end, the practice is ill advised for Mr & Ms Average as there can only be minimal advantages at the end of the day.
Sooo … 2020 sent me an email. (It would have been a newspaper, but newspapers don’t exist there any more, not because internet, but because paper is a luxury item and no-one has any).
Anyhoo, apparently contractors en-masse went back to being wage-slaves working for MegaCorp, with lower incomes and contributing less tax overall. (HMRC took a large hit)
MegaCorp pay zero tax because they’re registered in some tax haven. (HRMC have taken a large hit)
Ten thousand small accountancy firms went bankrupt because there weren’t any contractors needing their services. (HMRC took a large hit)
Everyone is either unemployed or earning less than they were, so they’ve stopped spending, creating more unemployment, inflation, whatever. (HMRC have taken a big hit)
As employees with rights we’ve all kicked back and are operating at (being generous) 60% of what we’re capable of, because, well, we can get away with it now that we’re employees, and anyway life sucks because we’re not in control of our lives, have no money, our spouses are unemployed, etc., etc. Output as a whole is suffering. (HMRC are taking a big hit)
The government coffers are empty, so they’re using the dregs to pay MegaCorp to build an AI that can handle all of the HMRC administration, allowing massive cuts to public sector jobs.
To be honest I got bored before the end and started skimming to try to find out what Kanye and Kim are up to. No joy, sorry.