|The main aim was to understand the possible effects of the reform on workforce structures, contractor rates and vacancies, and experiences of implementing the reform for private and voluntary sector client organisations. It follows research into the short-term and long-term effects of the reform in the public sector, which was published in 2018, 2021 and 2022.
'Read between the lines'
However, one firm of specialist contractor accountants warned that the detail lay beneath the surface of the report.
Matt Fryer, MD of Brookson Group, said: “To get a full picture of short-term effects of IR35 reform, you need to read between the lines of the latest HMRC reports.
“Our concern is that a third of businesses working with contractors have spent little or nothing on ongoing costs to comply with the rules. Furthermore, over half of organisations said that all of their contractors fell entirely outside or inside the rules, but in our extensive experience of expert reviews, this is very rarely the case.
“This suggests that a significant number of the 130,000 individuals who have been moved to payroll as a result of the reforms may have had contracts incorrectly categorised as inside IR35 and are now paying unnecessary employment taxes.
“HMRC seems keen to highlight that this represents just 2.5 per cent of the total self-employed workforce and less than one per cent of the total workforce. Is this an indication that the Government is content with the unfairness of this outcome?
“The other major concern is that a significant number of hiring businesses could be sleep-walking into tax compliance issues, as HMRC now actively pursues enforcement activity.
“The third of end clients who continue to engage with PSCs without ongoing compliance costs may have misunderstood the ongoing requirements of the legislation.
“There is also a false sense of confidence in automated tools such as CEST. These were used by the vast majority of organisations despite being repeatedly demonstrated not to deliver sufficient ‘reasonable care’ in a series of high-profile public sector tax repayments made this year.
“The risk of compliance mistakes is not meeting the ‘reasonable care threshold’ set out in HMRC’s own off-payroll guidance, resulting in significant hidden tax liabilities and potential fines.
“Although only around 10 per cent of end clients represent around a half of the total 'compliance spend', there seems to be no analysis in the report around compliance levels across businesses. This feels like a major oversight.”
This research was carried out by IFF Research Ltd and can be seen in full 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 2012