As IR35 consultation ends, is there any more clarity?

A series of recent high-profile court cases involving TV presenters have not done much to clarify who does and does not fit the criteria for IR35.

HMRC won their case against Christy Ackroyd, but lost cases against Lorraine Kelly and Kay Adams, who successfully argued that they should not be regarded as employees for tax purposes. Ackroyd will now appeal hers.

Now a consultation into off-payroll reform, which began for the public sector in April 2017, has closed. HMRC will consider the responses before announcing any possible changes ahead of implementation in the private sector in 2020.

However, many accountants – and their clients – fear that more time is needed to iron out problems with the way IR35 changes have been rolled out in the public sector before extending the rules.

Of the three high profile cases, Lorraine Kelly’s seemed to encapsulate the confusion. Although the courts found she was not within IR35 rules, but HMRC’s own CEST tool found that she would be covered by them.

Not fit for purpose

Angela Carter, who is a director at Saffery Champness and head of employment taxes, said that although the CEST tool has evolved, it does not reflect the way people work today.

“The circumstances and the ways of working are so different than they were years ago, and yet HMRC are bringing out these old, traditional tests which don’t reflect the way people work remotely and in an agile way,” she told Accountancy Age.

“HMRC has flagged that in their recent consultation and asked for feedback, so it is going to be interesting to see what changes are made to the tool, which was initially brought in for the public sector – again is much more traditional in its ways of working [than the private sector].”

While celebrity cases attract headlines and have put IR35 centre stage, remote and flexible working affect employees in many different sectors.

Carter pointed out that even in finance and accounting, traditionally viewed as a conventional or even old-fashioned sector, that flexibility is now the norm. This is thanks in part to the technology that allows people to work without being in the office.

Further delay?

As part of Saffery Champness’s response to HMRC, Carter said the firm recommends further delaying the implementation of IR35 to the private sector – at least until the issues with the public sector have been ironed out.

“The introduction of this has already been delayed until April 2020, but if you consider that the output of the consultation won’t be considered until late summer/early September, it doesn’t really give businesses enough time to plan.

“When it was brought into the public sector in April 2017 it was introduced far too quickly, and we saw all sorts of blanket assessments that took place in the NHS and the BBC where they just put everybody in, because they didn’t have time to go through the whole IR35 assessment. Then they backtracked, and it was just a real mess.

“Obviously we’ve got Brexit going on, and businesses are trying to prepare for that. Our response is very much that rather than introduce change piecemeal, and have to keep amending it, let’s learn from the public sector, give businesses more time to prepare.”

Campaign to stop the off-payroll tax

While some want more time before the scheme is implemented in the private sector, others want to see a complete stop to it.

“Certainty is required.”

Dave Chaplin, CEO and founder of ContractorCalculator and director of the Stop The Off-Payroll Tax Campaign said there are five reasons why he thinks it should be abandoned.

They are:

• It breeds tax avoidance, since so many cannot afford the higher rates;
• The disruption is “disproportionate” to the potential tax gains;
• Companies cannot afford the extra cost, such as national insurance, of treating contractors as staff;
• He believes it would restrict access to the justice process in case of disputes;
• Problems with the CEST tool

Chaplin said: “Certainty is required. If Government want firms to pay more when they hire the self-employed then it should simply introduce an Off-Payroll Tax, of say 2%, that applies to all workers that are hired off-payroll.  Government should finally put IR35 where it belongs – the bad tax bin.”

Results of the consultation are expected later this summer.