HM Treasury and HMRC are undertaking consultations to reform the off-payroll working/IR35 legislation with a view to improving its effectiveness. Businesses understand and fully support the rationale behind a change to the intermediaries’ legislation. The government is looking to address non-compliance, which leads to a loss in revenue which funds vital public services, and to level the playing field between the public and private sector. However, it is vital that both certainty and simplicity for businesses remains.
At a time where there is a focus on increasing productivity, the experience from the public sector is that the April 2017 reforms are creating new and difficult problems, adding costs for end-users. There remain key issues that require further consideration prior to any reform of the off-payroll rules being extended to the private sector. The government must consider the wider impact of any reform – moving ahead with a measure that risks dampening UK productivity sends the wrong signal to business during these challenging and uncertain times.
In summary, our recommendations include:
- Prospect of early implementation in 2019 be taken off the table. Providing this certainty for businesses ahead of the Autumn Budget would help to rebuild trust between business and government on this issue and allow for a more constructive discussion to get the policy right.
- Undertake a comprehensive post-implementation review of the public-sector changes. The government has a unique opportunity to review the impact the recent reforms have had on the public sector prior to private sector implementation. The evidence presented to date has been limited in scope, as has the period of time reviewed.
- Undertake an implementation impact assessment for the private sector. Key statistics, such as the total off-payroll anti-avoidance in the private sector and the cost of implementation for business, are driving the debate. However, these figures are preliminary and lack transparency as to how they have been calculated.
- Any solution should reflect the findings and recommendations of the government’s recent consultation on employment status. It follows that the timing of any implementation should only occur once the outcomes from the Matthew Taylor review have been settled, and it's fundamental that there is a holistic approach between the Taylor review and off-payroll working.
- Should similar public sector reforms be implemented in the private sector, the following issues should be addressed:
- Resources must be allocated for providing support and guidance through an appeals process in order to manage potential disputes
- The deficiencies of the CEST tool must be addressed so that it delivers reliable outcomes
- Businesses and software developers must be given time to develop and implement any new off-payroll working systems
- The government must consider carefully when is the right time to address non-compliance in the private sector.
We believe the government should conduct a holistic review to consider the tax and benefits in self-employed arrangements rather than piecemeal changes that add to complexity and undermine enforcement.