IR35, CEST & The 2018 Autumn Budget

Monday’s Autumn Budget will be the Government’s first official opportunity to respond to the recent consultation on off-payroll working in the private sector, and current discussion appears to revolve more around when the changes will come into force, rather than what the potential changes may be.

 

WHAT ARE THE GOVERNMENT’S OFF-PAYROLL, BUDGET PLANS?

Rumours are rife regarding the Government’s Budget plans for ‘off-payroll working’, with the BBC recently revealing that plans are being finalised to ‘overhaul the tax rules which allow self-employed people to avoid paying National Insurance contributions’, a move which could be announced this coming Monday.

Intermediaries Legislation (IR35) targets those who, falsely, position themselves as private companies. Such disguised employment, or ‘synthetic self-employment’ to adopt the buzz phrase, is precisely what The Treasury is looking to tackle. According to the BBC, an estimated one-third of people claiming self-employment as a “personal service company” should actually be classed as ‘employees’. It’s a contentious issue, as ‘full employees’ pay higher levels of National Insurance than those in self-employment.

Meanwhile, the Government is being urged to hold fire on any further legislative changes, with stakeholders calling for a ‘comprehensive review’ of the impact on the public sector. One of the main concerns is a lack of compliance and, following the closure of the consultation this summer, momentum is gathering amongst industry leaders.

 

“THE BIGGEST EVENT IN IR35’S HISTORY … AND NOT FOR THE BETTER”

ContractorCalculator – a company which provides advice and guidance for self-employed workers – have conducted analysis of over 30 consultation responses from key stakeholders in the tax, contracting and legal industries, to which Danbro contributed.

The Company’s Chief Executive, David Chaplin, said the proposals would “mark the biggest event in IR35’s history, and not for the better”, before calling for a more ‘holistic approach’ which aligns with the recommendations made in the Taylor Review. He also echoed fears regarding the proposed timing of the changes, with Brexit hot on the horizon.

The functionality of HMRC’s CEST tool has also been placed under scrutiny. Just last week, a former Met Office contractor successfully reclaimed thousands in overpaid taxes following an erroneous CEST assessment. Whilst CEST initially deemed that Business Analyst, Tony Elbourn, was within IR35, a subsequent tribunal found that he was, in fact, self-employed, in accordance with case law. So, IR35 could not have applied given the circumstances.

CEST, which stands for ‘Check Employment Status for Tax’, is an anonymous service provided by HMRC to assist public sector bodies in reaching decisions on IR35. It also gives freelancers clarification regarding things like the application of IR35, the payment of tax through PAYE, and whether off-payroll working rules apply to different sectors.

With the Budget announcement fast approaching, it once again calls into question the validity of HMRC’s CEST tool, and further fuels the demands for the Government to reconsider its plans to roll out off-payroll reforms into the private sector.

 

KEY IR35 CONCERNS HAVE NOT BEEN PROPERLY ADDRESSED

Here at Danbro, we believe that, overall, the recent public sector reforms have failed to address the main concern relating to IR35; namely, the difficulties in reaching an appropriate status decision based on outdated employment case law.

John Thorburn, Managing Director of Danbro Accounting Ltd, recommends that viable alternatives should be being considered: “Rather than simply repeat the reforms made to the public sector, there are alternatives available which could increase compliance without harming each link of the labour supply chain. These must be seriously considered,” he said.

 

GIVE IT TIME

Our hope ahead of Monday’s announcement is that the well-intended advice has been heeded, and that any new legislation is aligned with the outcomes of the aforementioned Taylor Review. Above all, though, sufficient time needs to be allowed for any legislative change to be properly and robustly implemented.

We understand that IR35 has its complexities, not to understate the issue. So, if you need guidance on your contract, or if you’re a freelancer, contractor, or if you’re self-employed, and you’d like to look into incorporating your business, get in touch with Danbro’s expert team now, or call us on 01253 600 150. You can also download our free guide today for some top tax tips. And, for the latest updates on Monday’s Budget, be sure to check out the Danbro website and social channels throughout the afternoon.

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