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Off-payroll working legislation ‘poorly drafted’, says ICAEW

22 February 2020: ICAEW’s Tax Faculty has called on HMRC to be proportionate in its response to non-compliance to off-payroll working rules from 6 April, as draft legislation isn’t coherent.

In ICAEW's latest response to the government's consultations on draft secondary legislation for off-payroll working, ICAEW REP 03/20 Off payroll working from April 2020: transfer of PAYE liability et al: draft PAYE and Social Security Contributions Regulations, ICAEW’s Tax Faculty argues that the income tax PAYE regulations (ITR) and social security contributions regulations (SSR) are poorly drafted.

As businesses have already incurred considerable costs to prepare for the imminent rule changes and with only six weeks before go-live, the Faculty says that delaying implementation would cause problems, and so urges HMRC to "be proportionate" in it dealing with non-compliance for the first year or two of the new system.

Included in the draft regulations are proposals to enable HMRC to collect unpaid PAYE relating to deemed employees from "the agent in the labour chain closest to the end client" or from the end client within a reasonable period of time.

The Faculty raises a number of concerns with these proposals, including:

  • that such a serious measure is being legislated in secondary, not primary legislation;
  • the meanings of “realistic” and “reasonable” in this context;
  • the possibility of charges falling onto the innocent; and
  • the rights of appeal.

The faculty welcomes the ITR’s provision that the deemed employer/fee payer must indicate in payroll submissions that the contractor is a deemed employee.

The draft SSR amends and extends the off-payroll working regime for NIC. The equivalent draft legislation for income tax will be in a Finance Bill (FB), draft legislation for which was published in July 2019 and on which the Faculty commented in September 2019 in ICAEW REP 86/19.

The draft SSR appears to be the same as the draft FB, and so the Faculty repeats the concerns it raised previously. In the absence of feedback on draft FB comments, it is not clear whether they have been considered by government. Major concerns on the SSR proposals, include:

  • the need to improve information flows for the status determination statement;
  • the disagreements process; and
  • RTI reporting.

While HMRC has published detailed guidance (ESM10000) relating the legislation on 10 February, the Faculty confirms that it still waiting for answers to practical questions raised in ICAEW REP 127/19.

In this latest consultation response, ICAEW maintains that the need for the off-payroll working regime could be eliminated if a long-term solution, such as removing or reducing the NIC cost imbalance between different types of employment status, could be agreed.

Meanwhile, industry awaits the reports of the Treasury off-payroll working review and the House of Lords Economic Affairs Committee Finance Bill Sub-committee review, to both of which ICAEW has submitted evidence.

For more guidance from ICAEW on off-payroll working, visit icaew.com/IR35.