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HMRC defends changes to IR35 off-payroll rules
by Susie Hughes at 12:31 06/12/21 (News on IR35)
The Government believes that the reform to the IR35 working rules is the right way to improve compliance with the rules.
The controversial 'off-payroll' rules were introduced into the public sector in 2017, and in 2021 for the private and voluntary sectors.

The latest comments come from the HMRC’s written evidence to the House of Lords Finance Bill Sub Committee for their inquiry into IR35 reform in the private sector.

A theme running through HMRC's evidence is that it is too early to assess the impact of the changes and whether - as many contractor representative bodies have claimed - they have caused a detrimental effect for working practices of contractors.

Qdos CEO, Seb Maley, said: “HMRC’s submission doesn’t tell the full story of IR35 reform. The Government paints a picture that suits its own narrative and interests rather than addressing the realities faced by contractors and businesses.

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“The tax office says it’s too early to assess the impact of the changes and if reform has made it more difficult for firms to engage contractors. It’s not too early. While more firms are getting to grips with reform, the fact of the matter is that it's created challenges and resulted in contractors being forced onto the payroll.

“The Government expects to raise £3.8bn by 2026 through IR35 reform. But are these assumptions based on contractors being fairly or unfairly placed inside IR35? And to say that IR35 reform has impacted only 180,000 contractors seems way off the mark, particularly when the Government has previously said 500,000 people work through umbrella companies – a way of working inextricably linked to contracting and IR35."

CEST
HMRC claims that their online self-assessment tool, CEST, is capable and aligened with case law. However the CEST tool has been the subjecg of on-going criticism since its introduction with experts and users claiming it is not fit for purpose.

Seb Maley said: “HMRC still somehow claims that CEST is capable and aligned with case law. Again, it isn’t. The tool hasn’t been able to determine a contractor’s IR35 status well over 200,000 times in the past year or so.

"What’s more, and despite this evidence making light of it, HMRC has no obligation to stand by an IR35 decision based on CEST.”

Qdos research completed by over 1200 contractors shows:

  • IR35 reform (62 per cent) is seen as the biggest threat to contracting in 2022, above new tax changes in April (18 per cent), Covid-19 and Brexit (both six per cent).
  • Most contractors also feel that IR35 will continue to impact them in 2022, with (51 per cent) not of the view that the situation will improve.
  • On average, contractors rate CEST (HMRC’s IR35 tool) as 2/10, with just 14 per cent happy to work with a business that uses the tool.

Scope
Other interested groups, including contractor representative body, IPSE, will also be giving evidence.

The subjects likely to be covered include:

  • The number of contractors affected by the new off-payroll working rules.
  • How the off-payroll working rules have operated in the first eight months they have applied to the private sector.
  • Effectiveness of CEST as an aid to determining the status of contractors for off-payroll working purposes.
  • Effect the off-payroll working rules have had on the way engagers recruit contractors and on the rates contractors are paid, gross and net of any deductions.
  • How well the implementation of the off-payroll working rules has gone for businesses.
  • Challenges faced by businesses in applying the off-payroll working rules to their contractors.
  • Compliance activity carried out by HMRC to check how engagers are applying the rules.

HMRC's written evidence is available here

Further IR35 information
For more information about all aspects of IR35, including the controversial IR35 reforms see Shout99's News on IR35 section.

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Susie Hughes © Shout99 2021

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