Aspire at the HMRC ‘Off-payroll working in the private sector’ roundtable discussion

16 July 2018

Rhian Lloyd, Employment Tax and HR Manager at Aspire Business Partnership, attended a HM Revenue and Customs (‘HMRC’) Roundtable discussion on 6th July 2018 regarding the “Off-payroll working in the private sector” consultation which was published on 18th May 2018.

Following HMRC’s introduction of IR35 reforms in the public sector in April 2017, whereby the risk and liabilities for complying with IR35 were shifted from the Personal Service Company (‘PSC’) to the ”fee payer”, it is highly likely that replicate legislation will be introduced relating to PSCs in the private sector.

Ultimately, Government are very concerned about the £1.2bn per annum that, reportedly, the private sector non-compliance with the off-payroll working rules costs taxpayers. HMRC explained that their main option is to extend the reform that has taken effect in the public sector, however they want to talk to 200 people face to face to understand the implications it could have as part of an evidence-gathering exercise, which will enable them to report findings to Ministers so that the Ministers can decide on the course of action to be taken.

HMRC explained that the consultation is seeking options to increase compliance with existing rules, as opposed to introducing new taxes. However, something that was discussed at the Roundtable discussion was implementing a CIS type tax, whereby 20% is deducted from all PSCs and then a reconciliation on tax/NI due takes place when filing company accounts/Self Assessments. Those in the room were confident that this would not be implemented on the basis that HMRC would still lose out on the Employer’s NI.

A concern held by attendees was the Taylor review consultation on employment status. The main question was, why introduce the private sector reform before any decisions are made on whether there will be changes regarding the determination of employment status. There were concerns that the IR35 changes would require new or amended systems and processes and staff would need to be retrained. This would result in huge financial strain for businesses. If this is then followed by the outcome of the Taylor review, it is likely to mean that the same systems and processes would need to be re-reviewed again. HMRC seemed adamant that they would not be waiting for the Taylor review outcome.

Another cause of concern is HMRC’s recent defeats at Tribunal in relation to IR35 cases and the question as to why HMRC don’t update the Check Employment Status for Tax (‘CEST’) tool to reflect the Tribunal’s view. There were thoughts that employers are less likely to trust HMRC’s view, which is encapsulated in the CEST tool, if they themselves cannot make correct determinations. I was told, “don’t get hung up on the Tribunal outcomes” and so, it seems the recent defeats have not had any impact on HMRC’s stance. One of those being that HMRC believe Mutuality of Obligation exists on any assignment/contract whereby there is work in exchange for pay. In response to the lost cases at Tribunal, HMRC explained that they did not present their best case and that unqualified people were sent who would not be sent again. HMRC being unprepared? I refuse to believe it…!

The CEST tool was discussed in great detail with HMRC mentioning the need for a new tool, or a revised tool, or no tool at all and instead, the use of guidance that sets out HMRC’s opinions. The room mentioned a simplified test as the multichoice answers on the CEST tool still left room for interpretation, especially as there is no HMRC guidance as to how to interpret/fill in the tool. It was also requested that employers are not subject to penalties if reasonable care is taken to fill in the tool and reach a determination.

HMRC asked the room for opinions on timescales. The general consensus was that employers would like at least 12 months to prepare for any changes following the publication of final legislation. For example, final legislation to be published in April 2019 and the reform to take effect from April 2020.

Other concerns raised were;

  • HMRC need to provide more guidance to raise awareness
  • The private sector business that may utilise PSCs tend to be smaller than public sector authorities and so less will have dedicated teams to fill in the CEST tool. Many won’t have HR or payroll teams and so, unintentionally, they could have more compliance issues
  • In the private sector, there are more low paid contractors forced into PSCs that will now be engaged via a different method that could lead to more non-compliance and loss to the Exchequer. These lower paid workers will have their take home pay reduced if they must begin to be paid via PAYE, as well as not receiving employment rights, such as holiday pay and National Minimum Wage
  • Employment tax and employment law treatment should be aligned, therefore an individual being taxed as an employee should receive the same rights as employees
  • Public sector authorities are not all about making a profit, instead they are more concerned with reputational damage, however, it is important that private sector businesses can run a profitable business whilst also trying to be compliant
  • Currently, a public sector authority must inform whoever they are in contract with (e.g. an agency) whether they believe the PSC worker would be an employee without its intermediary, but the legislation has no consequences for the agency not passing that message on to another party in the supply chain
  • Costs will be increased throughout the supply chain if the ‘fee payer’ must begin paying Employer’s NI, in turn increasing their Apprenticeship Levy bill
  • Legislation currently states that the public sector authority must make the determination of whether a PSC worker would look like an employee without its intermediary, however undertaking the determination prior to the assignment beginning may not reflect the reality of day to day operations

It was certainly an interesting discussion and a lot of the issues discussed seemed to open HMRC's eyes – whether or not the Ministers take note, or already have their eyes on the prize of saving the Exchequer £1.2bn per annum is yet to be decided. HMRC seemed to be most interested in the larger scale private sector businesses and the financial impacts that would be forced upon them through implementing the correct systems and processes. 

When it came to discussing the temporary labour market, particularly contracting intermediaries engaging PSCs, HMRC seemed to be far less interested. I was told a discussion “off-site” would be best as it did not concern most of the room, however, we are yet to receive any further correspondence…

In summary, it seems as though the reform introduced in the public sector will be extended into the private sector, albeit with some slight alterations. Assuming HMRC do take into account the views heard, they will delay implementation of the amended legislation until April 2019 due to employers not feeling confident that they will be prepared to be fully compliant by this time. However, whether they will let those concerns override the potential to increase exchequer funds by £1.2bn per annum remains to be seen!

See our news item on the off-payroll working in the private sector consultation here.

If you wish to discuss the proposed reforms with any of the team and how this will impact your business, please give us a call.