Following on from the debate in Westminster last month, MPs are calling for the government to hold off on plans to extend the off-payroll rules to the private sector next year.
An Early Day Motion (EDM) has been tabled, calling for Government to delay any further implementation of the off-payroll rules in favour of exploring other options. The motion highlights the negative impact of the rules on the contracting sector, with a dramatic fall in income for many contractors who believe they have been wrongly forced onto PAYE. The rules have also adversely affected business costs, as the changes have in many instances caused an increase in charging rates, adding an initial 14.3% to the cost of engaging contractors.
The EDM also addresses the ongoing problems surrounding CEST. Only last week it was revealed that, in response to a Freedom of Information request from a contracting authority, the Met Office disclosed that it deemed 98% of contractors caught by IR35 following assessments carried out between April 2017 and January 2019. This means that out of 141 assessments, only three contractors were considered outside of IR35.
Rather than being an anomaly, the figures point to an alarming pattern for public sector contracts since the reforms were introduced last year. For example, 98% of IR35 status assessments carried out by High Speed 2 (HS2) and 99% of those carries out by Network Rail were deemed to be caught by off-payroll rules. The investigating authority says that the disproportionate numbers strongly suggests evidence of blanket IR35 determinations.
Many of the companies have confirmed that they used a ‘straw man’ process of determination. This involves assessing one contractor’s status using CEST, then applying this to all contractors engaged in similar roles on a project. Despite the rules specifying that IR35 should be applied on a case-by-case basis, the public organisations confirmed that they had acted with HMRC’s guidance and approval.
This current practice is allowing organisations to abdicate their responsibility towards contractors, while HMRC are denying any suggestion of noncompliance. In many cases, the public organisations have also stated that their decision is final, in direct contravention of the last consultation document, which suggests that status disputes should be handled by a client-led appeal.
The failure to carry through with even the most basic safeguarding of contractor’s rights has left many open to exploitation without recourse. This has led to many MPs giving their support to the EDM, which says that further implementation of these damaging rules will deprive the country of essential skills.
There’s a risk that ploughing ahead with reforms in the private sector without addressing the issues will force many contractors to leave the UK workforce or the contracting sector for good. Tax experts are advising that more time is needed to collect data that would indicate if the reforms are working or not. Suspending reforms in the private sector would also allow time to consider ways in which the tax system can better support contractors, instead of penalising them with reforms that clearly aren’t working.
Changes to the off-payroll rules mean that contractors are at increasing risk from getting caught by IR35. For a clear and comprehensive overview read our IR35 guide and keep a regular check on our news pages where we keep you informed about the latest contractor news.