The off-payroll working rules – commonly known as IR35 – are intended to ensure that individuals who work like employees pay broadly the same employment taxes as employees, regardless of the structure they work through. The off-payroll working rules apply where an individual (the worker) provides their services through an intermediary to another person or entity (the client).
The government announced at Budget 2018 that to increase compliance with the existing off-payroll working rules in the private sector, businesses will become responsible for assessing the employment status of the off-payroll workers they engage. The business will also be responsible for ensuring that associated employment taxes and National Insurance contributions (NICs) are paid to HM Revenue and Customs (HMRC). This will bring the private sector in line with the public sector.
The government is proposing to extend the reform of the off-payroll working (IR35) rules to the private sector from April 2020. A consultation was launched to collect views on whether the proposed processes of the reform are suitable for the large and diverse sectors in which it will apply, as well as views from those in the public sector already applying the rules. The consultation period has now closed and the CBI has submitted its written response.
Experience from the public sector reform - which has been in force since April 2017 – showed the creation of new and difficult problems, adding costs for all parties within the labour supply chain. The reform has resulted in a significant increase in the administrative burden in order to comply with the rules, often requiring changes to systems and processes across multiple functions. Alongside this, the speed of implementation in April 2017 resulted in little time for organisations to understand the legislation, increasing complexity and uncertainty.
When the reform is extended to the private sector, the issues experienced within the public sector reforms will be amplified. This is due to the nuances of different sectors and the vast number of businesses that will be impacted. Many businesses remain unprepared for the changes and are relying on HMRC guidance, but detailed guidance and relevant legislation has not yet been published. For businesses to have the confidence that they are fully compliant with the rules, they will need the legislation at least one year prior to implementation of the reforms.
The CBI therefore recommends that:
- There is a delay in implementation of the private sector reform until April 2021. Many businesses remain unprepared for the changes, particularly given the ongoing uncertainty of Brexit, which continues to divert resources and reduces businesses ability to react quickly as and when legislation and guidance is published.
- The government undertakes a complete and comprehensive post-implementation review of the public-sector changes.
- The government undertakes an implementation impact assessment for the private sector. The reforms are complex and require substantial internal business investment in order to comply with legislation, further increasing the cumulative burden on business.
- Prior to implementation of the reforms, there are further issues that must be addressed, including: a suitable appeals process; standardised documents that form part of the determination process; clarity from HMRC as to the obligations of each party within the labour supply chain; and detailed guidance and legislation to the private sector to enable businesses to comply.
The CBI has continued to engage with government to ease the burden on business:
- In 2018, the government originally proposed that the reform be carried out in April 2019. The CBI lobbied government for a delay in implementation, and we were successful in deferring the launch until April 2020, which provided businesses much needed time in order to start preparing for the reform. Given the lack of legislation and guidance to date from government, this needs to be pushed back further – the time that was provided has not been utilised sufficiently.
- The CBI lobbied HMRC to improve the Check Employment Status for Tax (CEST) tool in order to make it suitable for use in the private sector. At Budget 2018, the government committed to reforming the tool ahead of the April 2020 reform. CBI members have since played a key role in working with HMRC specialists, providing feedback as to required improvements of the functionality of the tool from the early stages of development, through to prototype testing.
- The CBI consultation response was submitted on 28 May. The next steps include continued engagement with the HMRC specialist team to further to improve the functionality of the CEST tool. The CBI have roundtables with HMRC to further explain our consultation recommendations and push for reform ahead of implementation.
But there is still more the government needs to do. The CBI will continue to lobby on behalf of business to reduce the cumulative burden and make it easy for firms to understand and comply with legislation.