Businesses will be responsible for assessing an individual’s employment status.
However, the Low Incomes Tax Reform Group (LITRG) warn that the changes are likely to see some low-paid workers pulled out of limited companies, leaving them with messy compliance issues that could follow them around for many years.
Victoria Todd, head of LITRG Team, says: “We need to make sure that these changes don’t leave low-paid workers in the lurch. We appreciate the Government have concerns around IR35 compliance, which we share; and we welcome HMRC’s commitment that it will not use these changes as an opportunity to look into historic compliance issues.
”An exemption for small businesses is welcome, particularly as HMRC’s Check Employment Status for Tax tool is not the Holy Grail that they think it is. Indeed, this is something we called for in our response to the consultation. But there is another dimension to this story – the impact on the workers who are working through a limited company for medium and large business in the private sector. It is well known that many low-paid workers, such as temporary workers who find work through agencies and other intermediaries, are only in limited companies in the first place at the behest of the intermediaries that engage them, as this saves those businesses employers’ NIC and often provides them with an additional revenue stream through providing the worker with ‘accountancy services’.
”If the intermediary concludes that the new rules effectively neutralise the tax advantages of these arrangements, it is likely that workers will be pulled out of limited companies. If what we saw after the public sector changes is anything to go by, they could then find themselves encouraged into other dubious arrangements that help engagers protect their profitability. In addition, HMRC must be aware that the abandonment of limited companies could create some very messy compliance issues – made worse by the fact that often the workers involved have little understanding of how such vehicles operate. They cannot separate out their own affairs from that of the limited company. They stand very little chance of closing down the limited company correctly. If businesses do respond by forcing the abandonment of limited companies, it could happen on a large scale with many workers affected. The Government will need to be prepared and will need to consider their response very carefully.”
Brian Palmer, tax policy expert at the Association of Accounting Technicians says: “The delay to new rules determining IR35 status in the private sector to April 2020 will be widely welcomed by accountants and other tax professionals. With there being no evidence to date that ‘off-payroll’ rules have worked in the public sector last year, it’s clear more work needs to be done to truly define those taxed as employees and those taxed on a self-employed basis, and to allow private sector businesses adequate time to prepare.”
There is much to dissatisfy the experts therefore and the situation in not clear for businesses, large or small or for the self-employed, not all of whom have set up as private companies for the sole purpose of reducing their national insurance payments.
Nigel Morris, employment tax director at accountants MHA MacIntyre Hudson said: “Reform of the IR35 rules is seen as a less politically controversial way to raise money for the Treasury, in the absence of Parliamentary support for an increase in National Insurance Contributions (NIC) from the self-employed.
“What’s concerning is that the consultation this move is based on is too narrow in scope, ruling out some previous options that had real merits. The Government needs to be open minded in how it delivers continued IR35 reform, the public sector roll out has not gone smoothly and it’s important these lessons are taken on board .
“We welcome the move to delay implementation until April 2020, and to limit it to large and medium sized businesses – we could never see that the private sector or HMRC would be ready to implement the changes next year. The change of plan also reduces what would have been an unnecessary burden on small businesses.”