Off-payroll reforms into review

January 8, 2020

Following months of disquiet, the government has announced a review of the extension of the off-payroll taxation rules into the private sector. But it may be too late to prevent implementation.

The rules, known as IR35, are intended to tighten non-compliance with off-payroll working regulations by shifting responsibility for determining the tax status of contractors from the workers to the end users – in this case, private sector medium and large organisations and charities.

Uncertainty around the rules has been compounded by several Tax Tribunal cases both won and lost by HMRC. Groups representing those working through personal service companies have lobbied the government that the implementation of the extension poses serious financial risks to those affected.

One key contentious issue is HMRC’s online employment status test tool. The CEST tool (check employment status for tax) has been widely criticised as lacking nuance and being skewed towards employment status rather than self-employed. In 15% of cases, the tool was unable to provide a determination. In December, HMRC released an update to the tool, including a raft of new and updated questions, with feedback invited from over 300 stakeholders.

The government review is due to last for a month, into mid-February, and will include meetings with stakeholder groups of contractors and businesses. While it’s unlikely that the roll-out will be cancelled, the review is tasked with investigating the impact of the changes across different types of contractors and those who will have to implement employment determinations, with a view “to ensure the smooth and successful implementation of the reforms”. Analysis of the impact of the initial roll-out to the public sector will be included, as well an evaluation of the revised CEST tool.

With only weeks before the new tax year, this intervention may create more uncertainty for those affected by the off-payroll reforms. If you have any questions about your status, please get in touch.

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