We are nearly approaching the end of 2018, and it has been a year that has created more uncertainty regarding IR35.
The year has been a waiting game for self-employed and independent contractors, associated intermediaries, and representative agencies. There was speculation at the start of the year about whether the Government will extend the controversial IR35 reform to the private sector. And during D-Day, in October when the Budget 2018 was announced, it chose to remain coy regarding the off-payroll working rules.
While the private sector did not welcome the announcement, at least it was given time to prepare for the eventual implementation. Moreover, the fact that small private sector companies won’t have to comply with the IR35 reform had been music to the ears for some self-employed individuals.
By extending the off-payroll working rules till April 2020, the Government has given medium and large sized private businesses the much-needed time to get ready for the changes.
Public Sector Still Reeling Due to IR35 Reform
Meanwhile, the public sector is still facing the music due to the IR35 reform introduced in April 2017. The bone of contention regarding the off-payroll working rule was an incorrect assessment of many contractors due to it being placed inside the rules.
The contractors were chosen as scapegoats for the public sector companies to protect themselves from any liability. They were found to actively encourage contractors to take part in tax avoidance schemes. Up until now, contractors have faced the brunt of the blame due to engaging in such schemes, while public sector companies have remained scotch free. That’s why it’s understandable that most self-employed individuals are wary about working for the public sector.
The Check Employment Status for Tax (CEST) tool that is recommended by HM Revenue & Customs has resulted in a lot of wrong assessment. The tool has been used more than 750,000 times by public sector companies to assess self-employed and independent contractors. Due to the flawed assumption that Mutuality of Obligation (MoO) exists in every contractual engagement, using the tool has resulted in many wrong assessments.
Various cases were filed by contractors against wrong employment assessment, and in the majority of the cases, the tribunal awarded judgement against HMRC. Despite losing most of the cases, the tax agency continues to claim that its tax assessment tool is free of any flaw. Still, the agency did admit in a November meeting that the tool required some refinements and that it would include information about MoO on its website.
HMRC has been criticised for taking an aggressive approach in enforcing compliance. A Lords report released just a few weeks ago believed that the tax body should rethink its approach regarding the IR35 compliance. Moreover, the Loan Charge 2019 was strongly criticized by MPs in a House of Commons meeting with majority of them agreeing that the retrospective charge could lead to misery for the affected individuals.
Right after the Budget 2018, the Government announced a second IR35 consultation to discuss issues regarding the reliability of CEST. Moreover, it announced that details will be provided to contractors on how to properly pursue a case if they did not agree with an assessment decision.
Going forward into 2019, IR35 consultation is expected to be published during the early part of the year. The next twelve months will be vital for the private sector to prepare for the implementation of the off-payroll working rules in April 2020.