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Government reviews implementation of off-payroll reforms

ICAEW's Tax Faculty welcomes the UK government undertaking a review to smooth the transition, but remains concerned that businesses will not be ready by April 2020 and has been pressing for a year’s delay.

12 January 2020 - The government has launched its promised review into the implementation of changes to the off-payroll working rules from April 2020 to determine whether any further steps can be taken to ensure the smooth and successful implementation of the reforms.

The review will engage with affected individuals and businesses on their experiences of the implementation of these reforms and gather evidence from stakeholders representative of those affected by the reform, contractor groups and medium and large-sized businesses.

The government will also carry out further internal analysis, including evaluation of HMRC’s enhanced check employment status for tax (CEST) tool and public sector bodies’ experience of implementing the reform to the off-payroll working rules in 2017.

The review will conclude by mid-February 2020.

By way of background, the original rules, colloquially known as IR35, were introduced with effect from 6 April 2000. Their objective was to ensure that someone working like an employee but through a company or similar intermediary pays similar taxes to employees. Under the IR35 rules, the contractor is responsible for determining whether in the absence of the company or similar intermediary through which they work they would be an employee of the end client.

Reforms introduced in April 2017 were designed to help tackle non-compliance with the IR35 rules by making public sector bodies responsible for determining the employment status of their contractors. Further reforms, announced in the 2018 Budget and which come into effect on 6 April 2020, will make medium and large organisations in the private and third sectors responsible for determining the employment status of contractors.

As part of the review, the government will explore whether there are any further steps it could take to support businesses in correctly determining employment status.

The off-payroll working rules do not affect the self-employed working direct for clients as only those working through companies and other intermediaries are in scope.

The government will launch a separate review to explore how it can better support the self-employed.

Employment status is a judge-made test and even enhanced CEST does not cover some important case law such as mutuality of obligation in the employment sense. Furthermore, the draft legislation for the prospective reforms published in the summer contained gaps (see our response to HMRC’s invitation to comment on the draft legislation ICAEW REP 86/19).

Three years after the public sector reforms were introduced, there remain too many operational questions that need clarifying (see our 57 Q+As TAXguide 16/19 and the Tax Faculty submitted a list of practical questions to HMRC in December 2019 ICAEW REP 127/19). As we said in our representations on employment status (ICAEW REP 45/18), eliminating disguised employment requires fundamental long-term solutions which would include reducing tax and NIC differentials between different types of income.