In April 2017, contractors and freelancers working in the public sector were dealt a huge blow when Chapter 10 of the ITEAP (widely referred to as “off-payroll in the public sector”) came into effect. From this date forward, public sector clients would be responsible for determining the IR35 status of their temporary workforce. Consequently, contractors and freelancers would be required to receive their pay effectively as salary (subject to PAYE and Employees National Insurance), whilst the hiring firm was obliged to pay Employers National Insurance on the deemed salary. It now appears that the Treasury and HMRC want these changes brought into the private sector, but it’s not a foregone conclusion.
We’ve had a lot of questions from recruitment consultants about the expected changes to off-payroll in the private sector. Nothing is set in stone yet, but before HMRC go ahead and make a decision, there are plenty of problems that need to be taken into account.
The changes to off-payroll in the public sector have caused all types of issues for contractors, freelancers, public sector organisations and recruitment agencies but despite this, HMRC is looking to roll it out into the private sector as well.
According to Dave Chaplin, CEO at ContractorCalculator, HMRC has deemed off-payroll in the public sector as a success, regardless of apprehensions from a majority of stakeholders in the contracting industry. As a result, ContractorCalculator has analysed “33 consultation responses and relevant material from some of the key stakeholders in the contracting sector, tax and legal industries.”
Below is a summary of the conclusions that ContractorCalculator “put forward in response to HMRC’s off-payroll consultation.”
Bringing in the changes in April 2019 is far too soon
If the new changes were to come into effect early next year, the private sector would not have enough time to prepare and there could potentially be chaos.
The impact must be thoroughly studied
The implications on the public sector should be thoroughly reviewed and this information should be used to predict how the changes in the private sector would affect everybody involved.
HMRC’s CEST is “hopelessly unreliable”
The Taylor Review must be taken into consideration
The Taylor Review was conducted to provide an evaluation of modern working practices in the UK and to ensure employment rights are fair and nobody is left vulnerable.
HMRC’s research must be accurate
ContractorCalculator’s analysis concluded that “HMRC’s interpretation of the IFF Research report provides an inaccurate portrayal of the impact of the Off-Payroll rules on the public sector.”
Tax avoidance has increased as contractors and freelancers are panicking
Many contractors and freelancers in the public sector have seen their take home pay decrease because they are not able to work on their assignments via a limited company deemed outside IR35. As a result, there has been an increase in the number of self-employed professionals unethically using tax avoidance schemes to counteract their loss in earnings.
Brexit will have an impact
Self-employed professionals are already facing uncertainty because of the question marks surrounding Brexit. Announcing off-payroll changes in the private sector now would be dreadful timing.
The public and private sectors are not the same
This goes without saying. The public sector has vast differences from the private sector and the changes that were made in April 2017 have not been successful in the eyes of many stakeholders. Therefore, basing the off-payroll in the private sector legislation on the changes in the public sector would be ominously naive.
HMRC’s stance is conflicting with existing laws and they’re losing
HMRC has lost recent cases, such as the ground-breaking defeat against English football referees. ContractorCalculator’s findings uncovered that “HMRC’s approach isn’t fully aligned with employment law, particularly its flawed interpretation of mutuality of obligation (MOO).”
Small businesses need help
If off-payroll in the private sector is introduced next year, small businesses will need extensive help understanding the legislation if they are going to operate compliantly.
Churchill Knight will continue to keep contractors, freelancers and recruitment consultants informed with the latest developments regarding off-payroll legislation. We also recommend you keep up-to-date with ContractorCalculator’s progress in their attempt to ensure HMRC introduce fair and well-thought-out changes to IR35 legislation (if any are actually necessary at all).