FCSA Survey Suggests Legal Challenges to IR35 Reforms Inevitable

Many will have wondered why HMRC have ‘gone quiet’ regarding the possible extension of the IR35 changes that affected the public sector last year, to the private sector.

Admittedly, all government departments have had a substantial amount of time taken up with Brexit issues, but a recent survey conducted by the FCSA – an independent trade association, may indicate another reason for radio silence.

According to an FCSA survey, which questioned intermediaries supporting public sector workers, 50% of the responses showed that no IR35 status test had been used on those workers sourced via agencies. Instead, workers were simply labelled as inside (42%) or outside (8%) IR35.

HMRC have publicly said that in their view the IR35 changes to the public sector were a great success, with the collection of taxes increasing as a consequence. However, this survey suggests that some of this additional tax may have been collected in error, due to the inadequate assessment of workers’ IR35 status. Julia Kermode, chief executive of the FCSA anticipates that, where workers have been wrongly deemed as employed, legal challenges are inevitable.

Despite the introduction of the HMRC assessment tool, only 24% of respondents had used the CEST or Check Employment Status for Tax tool in making their decision, suggesting that the CEST tool may need a revamp.

It is also likely that the generally accepted application of the IR35 changes to the private sector will be delayed from April 2019 to a later date, whilst HMRC deal with potential legal challenges and attempt to enhance the reputation and increase the use of the (adjusted) CEST tool.

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