IR35 branded to peers as ‘the sickly child who’s never got any better’

The first expert-witness session at the Lords off-payroll inquiry has heard IR35 likened to a “sickly child ever since its conception 20 years ago who hasn’t got any better along the way.”

So reform of the law from April 6th 2020 should only be treated as a “temporary sticking plaster,” mindful that its design is imperfect, but that HMRC needs to plug a NICs gap.

Keenly nodding in agreement to this characterisation and recommendation, which was submitted to the peers by Justine Riccomini, head of tax at ICAS, were two other tax experts.

They were Colin Ben-Nathan of the CIOT, who sat behind Ms Riccomini ahead of his evidence, and Jason Piper, head of tax and business law at the ACCA, who flanked her.  

'Tackle the status conundrum'

She then submitted that a working group should be convened, made up of the Office of Tax Simplification among others, to “tackle the conundrum of employment status as a whole.”

Such a “remedy” (in the words of the Lords, who asked for solutions), is preferable because “we don’t have the necessary certainty at the moment,” tabled Anita Monteith of the ICAEW.

In fact, despite engagers banning and blanketing – a trend Ms Riccomini says won’t likely stop as individually assessing PSCs takes “until kingdom come,” nobody is totally prepared.

'Nobody's ready for reform because the rules aren't ready'

“I wouldn’t say that anyone is completely ready, because the legislation is not ready,” the head of tax at the Institute of Chartered Accountants in Scotland (ICAS) added.

“And thus people have only been able to prepare as far as they can, given the information [from HMRC/HMT] that they currently have available to them.”

The ACCA’s Mr Piper, who today reflects on his experience giving evidence to the Lords in a piece exclusively for ContractorUK, agreed.

'HMRC is still finessing the rules'

“As recently as Friday of last week, we were still having the actual implementation of these [April 6th] rules set out by HMRC,” he said, referring to the ‘services/payment’ update.  

He added: “Until then, nobody even knew whether it [the new IR35] might potentially apply to any services which are paid for after 6th April, even if already performed now.

“[For HMRC] to still be finessing the rules and making those changes this close to implementation has to be a concern for business. The largest ones will often ask for 12 or even 24 months’ notice to change their systems or processes.”

'Our 100 questions on IR35 won't ever be answered'

And it’s not as if advisers haven’t tried to extract details from the Revenue.

Ms Monteith, for example, spoke of 100 questions on private sector IR35 reform she has posed but which HMRC says it will not answer, as she was told the answers will “become apparent.”.

The public sector experience of IR35 reform isn’t providing much help either, partly as any “read-across’ implies its PSC usage is the same as the private sector’s, which it isn’t.

'Too early to have a proper grasp'

Mr Piper also said that it was simply “too early to have a proper grasp” of the lessons that should be learned from the April 2017 off-payroll reforms. Both Ms Monteith and Ms Riccomini agreed.

There was further agreement from the experts on CEST, most vocally by Ms Monteith (“inadequate,” “not fit for purpose” “a blunt tool”), and Mr Piper, who estimated 40,000 contractors to have undeterminable IR35 status (based on HMRC estimate of 230,000 PSCs and CEST being conclusive in just 85% of cases).

But it was the tax technical lead at the Institute of Chartered Accountants in England & Wales (ICAEW) who also found fault with HMRC’s Status Disagreement Process, expected of engagers to install, run and administer.

“It’s inadequate. We need a much better system for doing this. We wanted an independent dispute resolution process,” Ms Monteith said.

“[Also], we need a better process for if the client says, ‘no I stand by my original determination.’ There needs to be a better way for the worker to actually challenge that again, properly and independently.”

'Call HMRC in Newcastle'

The tax expert, who has been involved with IR35 since before its formal introduction, says the recommended process for workers to also disagree with CEST is, likewise, wanting.

“If you get to the end of the CEST tool and you get ‘undetermined,’ you are told to call HMRC in Newcastle. I’m not entirely sure how satisfactory that is.”

Following his testimony, Mr Piper told ContractorUK: “In practice, if these rules cannot be delayed or reformed then the softest of soft landings, allied to a properly resourced and supported education campaign from HMRC, would be most likely to mitigate the impacts on business.”

'We need real reassurance from the taxman'

At the session, Ms Monteith said much the same: “Given that is unlikely that it will be put back again….I think we need real assurance from HMRC that the enforcement of this when it comes in is going to be proportionate and we don’t want to see any draconian measures being taken by individual officers.”

Ms Riccomini, who told the peers there has been “significant delay” from HMRC in rolling out relevant communications to parties liable under the April rules, appeared to suggest that not even a soft landing, nor a light touch approach, could square the circle.

She said: “I don’t think it’s going to be possible for people [at end-user companies] to become employment status experts especially in such a short space of time. It’s an extremely complicated issue. I don’t think [a significant proportion of engagers will ever arrive at the level of proficiency required to implement this framework].”