Patchy preparation for IR35 off-payroll rule changes blamed on HMRC

The preparedness of the private sector for IR35 changing in a little over 150 days’ time has suddenly been thrown into extreme doubt.

The doubt seems to have started with a new poll by Hays, finding that one in three affected businesses which regularly engage contractors are simply “unaware” IR35 is about to change.

But it actually began two weeks ago, with two searching questions by two MPs, both of whom received stock answers from Jesse Norman to their queries on IR35 reform preparations.

'What steps, what discussions'

Labour MP Barry Sheerman asked the Treasury minister about “what steps” have been taken to ensure mid-sized engagers are “adequately prepared” in time for April 6th 2020.

Similarly, Tory MP Laurence Robertson asked the minister “what discussions” he has held with large companies to gauge their ability to assess IR35 status -- the reform’s central plank.

Neither MP received an answer that is not already contained in HMRC’s guidance on off-payroll working, seeming to spark uneasiness from many parties outside of parliament.

That uneasiness has grown due to the Budget being cancelled but not rescheduled, and grown further with Brexit preparation (not IR35 preparation) still dominating engagers’ attention.

'Nowhere near enough to prepare'

“The government has done nowhere near enough to prepare businesses and contractors for the changes to IR35 next April,” says IPSE, the contractor body. Experts in tax the ATT said:

“Under the current timetable there remains only a little over five months for businesses to get ready and this at a time when many will be preparing for…the implications of Brexit.”

The ATT’s Jon Stride elaborated: “The cancellation of the UK Budget should lead to a delay to [IR35 reform of]…12 months.

“This is because the longer the delay to the Budget and Finance Bill, the longer businesses will have to wait for the final legislation… leaving businesses with a greatly reduced and unrealistically short time frame in which to adapt to the changes.”

'More time to prepare'

Submitted to ContractorUK yesterday, research into PSCs’ own accountants confirms that the window to achieve HMRC compliance with the IR35 changes is seen as far too small.

In fact, FreeAgent found that out of more than 120 tax advisers, 75% believe the government should shelve its plans to extend the public sector’s IR35 changes to the private sector.

As to why three-quarters of accountants say both themselves and end-users need “more time to prepare”, over eight in 10 said it was because detail from the government has been scant.

'Extreme caution'

When it was last shown criticism of its IR35 reform prep and resources, HMRC told ContractorUK that its then-August guidance built on a “list of actions” engagers could take.

But one of its ex-officers implies it is the showpiece of the resources, CEST, that fails to inspire engagers to have much reliance on HMRC, or much confidence in the point of preparing.

“If you use the tool in its current form, and input that you or the contractor can send a substitute then bingo; you get an outside IR35 result,” says Kate Cottrell, a former inspector

“I would therefore urge extreme caution in relying solely on CEST [as a preparation].”

'Real lack of clarity'

At the Association of Taxation Technicians, Mr Stride sounds similarly put out by the IR35 digital tool – and indicates that it alone is reason enough to postpone the off-payroll rule changes.

“The lack of final legislation and detailed guidance, combined with the current absence of an updated version of HMRC’s much maligned CEST mean that there is a real lack of clarity as to how the off-payroll rules will operate in practice in the private sector.”

He added: “This makes it near impossible for businesses to make adequate preparations.”

'Good tool'

Not everyone agrees about CEST, however.

In an advisory to help firms prepare for the IR35 changes, UHY Hacker Young called CEST a “good tool to get an idea of how HMRC would view an assignment.”

IPSE’s Andy Chamberlain, the group’s policy director, sounds unconvinced. “Compliance with the rules is clearly going to be an uphill struggle for businesses across the UK,” he said.

Even putting CEST aside, the ATT says many practical issues, such as when liability can be transferred, are ‘not addressed in the draft IR35 legislation at all.’

'Detriment of workers'

“We have also seen only limited evidence of any HMRC education and information campaigns so far,” the association said last week.

“Without a delay, we anticipate low levels of compliance and increased numbers of errors, and greater demand on HMRC telephone lines and HMRC staff for support at a time when their resources are already strained.

“We may also see risk-averse positions being taken by businesses, for example, a blanket decision to put all workers onto the payroll regardless of the nature of the arrangements, to the detriment of workers.”

'Come back to haunt them'

IPSE’s Mr Chamberlain reflected: “Hirers must not…be tempted to do as several banks have and either scrap their contractors or force them onto the payroll.

“This is a hugely damaging and short-term step that will stifle their flexibility and come back to haunt them later.

“The changes to IR35 caused chaos in the public sector in 2017 and they are set to do even more harm to an under-prepared, and deeply worried private sector.”

'Risks repeating the errors made'

The ATT’s Mr Stride, who regards the April changes as a “fundamental change” to how businesses engage limited company suppliers agrees.

He said: “The government has previously stated that they were committed to learning from the rushed introduction of these rules to the public sector in 2017. 

“We believe that introducing the off-payroll rules to the private sector in April 2020, when final legislation and detailed guidance are not yet available, risks repeating the errors made in the public sector, rather than learning from them.”