News & Blog

 

Over the last two years there have been many headlines concerning IR35, which at it’s heart is simply whether an individual should be taxed as an employee.

Alongside the headlines there have been an increasing number of cases going through the Tribunals and in May 2018 HMRC launched a consultation on “Off-payroll working in the private sector” which has recently closed. 

With all this scrutiny are we any closer to getting a clearer, easier to understand set of rules that are fair for fall? In short, no. 

The legislation governing this area were introduced in 2000, and while arguably not the clearest legislation, the issue has been with HMRC’s hesitancy to utilise its powers and allow many practices in the grey areas to go unchallenged. As a result the legislation remained largely untouched, until April 2016. At this point a fundamental change to the rules was introduced which put the onus for deciding the employment status of a contractor solely with the party they were contracted to, where the contracting party was a public body. Until this change the assessment was made by the contractor on a self-assessment basis.

Around the same time HMRC relaunched its employment status tool (“CEST”) to ‘help’ decide the appropriate status. CEST was short-lived and was soon withdrawn by HMRC due principally to heavy criticism as it was too heavily weighted in assuming an employment arrangement existed. 

With potentially significant penalties chargeable on the party making the assessment, it is not surprising that in the public sector it has been widely reported that many organisations simply took a blanket approach to contractor engagements, treating them all as employees. The impact for contractors was either accept a significant reduction in net remuneration or seek work solely in the private sector. Alternatively costs to the public sector had to increase. Unsurprisingly many contractors simply ceased working within the public sector.

We still await the results of the latest consultation, which is likely to be in the 2018 Autumn Statement. The fear is that the result will the application of the April 2016 rules to the private sector. This is despite feedback from professional bodies and those bodies representing contractors that such a step is likely to have a negative impact on the economy, especially with the uncertainties around Brexit. 

 

If you would like to discuss the impact any changes could have on you as a contractor or as a business making use of contractors, please contact myself or your usual Thomas Westcott contact