In its response to the three-month consultation, which ended on 10 August, the Association of Taxation Technicians (ATT) called for the proposed extension should be dropped or, failing that, deferred over concerns that self-employed people working through their own personal service companies (PSCs) may unfairly lose a significant part of their take-home pay under the plans.  Michael Steed, co-chair of ATT’s technical steering group, said: ‘We do not feel that a convincing case has been made for the extension of these rules to the private sector. Our strong preference is for there to be greater and more visible compliance activity by HMRC to enforce the existing rules. 

‘We have not had a full compliance cycle since the public sector reforms were introduced, so cannot say for sure that they have worked as well as HMRC think in that sector.’

ATT says no changes should be made before 2020, on the basis that businesses will have enough upheaval to deal with in 2019 with the combined effects of Brexit and the rollout of Making Tax Digital.

It also points out that HMRC is consulting separately on employment status following the Taylor review of modern working practices, and say the government should instead consider the wider picture such as the taxation of employment verses self-employment before any extension of the off-payroll rules into the private sector goes ahead.

ATT’s concern is that clients will decide that the off-payroll rules apply in a greater number of situations than they truly do and that, unless the PSC has a very strong bargaining position, they will not be in a position to challenge such decisions. Where the individual and their PSC disagrees with a client’s decision as to their classification, there is no right of appeal at that time to HMRC because the tax authority’s view is that this is a dispute between the client and worker which must be resolved between them.

Steed said: ‘It is vital that the right decision on tax is taken in the first place given the difficulties that PSCs have in challenging their position. It is expected that many private sector businesses will rely on HMRC’s check employment status for tax (CEST) tool to determine the position.

‘We have a number of concerns about the quality of the answers that CEST provides and call for measures to ensure that the CEST is developed into something that is reliable and accurate and in which both worker and client can have confidence.’

Similar concerns have been raised by the Association of Recruitment Consultancies (ARC) in its response, describing the proposals as potentially ‘the straw that broke the camel’s back’ for employers, who are already facing challenges from Brexit and Making Tax Digital.

Adrian Marlowe, chairman of ARC said, ‘Although there is an issue of non-compliance which needs addressing, the proposals as they stand unnecessarily penalise the UK’s thriving contractor workforce, the contractor supply sector and, most importantly, hirers.

‘The evidence on which HMRC bases its proposal is inadequate and certainly insufficient to justify its argument for extension. There has been no full impact assessment and use of the online tool CEST, which has been heavily criticised, remains open to question.’

IPSE, the contractors’ umbrella body, also maintains that extending IR35 changes would be 'extraordinarily short-sighted'.

In its response, IPSE warned that pushing the change out into the private sector would heap a greater administrative burden onto UK businesses, reduce productivity and further complicate employment status law. It particularly urged the Government not to extend the reform while the uncertainty of Brexit is hanging over the economy, arguing that it needs the flexibility provided by freelancers now more than ever.

IPSE also used the response to raise concerns about the reliability of HMRC’s CEST tool, asking how clients could be expected to determine IR35 status when even HMRC’s own tool cannot. 

Andy Chamberlain, IPSE’s Deputy Director of Policy, said: ‘Research by IPSE and the CIPD has shown that the changes did serious damage to the public sector, causing walkouts, project delays and even cancellations.

‘There are many more self-employed people in the private sector, so the damage from this could be far more significant. Not only would the changes be a major administrative burden for private sector clients; they would also limit businesses’ access to skilled flexible labour and ultimately drive down productivity.’

Closed consultation Off-payroll working in the private sector is here

The ATT response is here

The ARC response is here

The IPSE response is here 

Report by Pat Sweet