HM Revenue and Customs (HMRC) has recently announced that it will publish a second Consolation Document regarding private sector off-payroll working rules in mid-2019.
The taxation body has announced that the new consultation will focus on the operations of the IR35 reform rules that will be implemented in April 2020. The new consultation will guide the Finance Bill legislation that will be published next year.
IR35 reform rules have been heavily criticised by experts. The main reason for the censure is a wrong assessment of contractors that wrongly put them inside IR35. The problem stems from shortcomings of HMRC’s Check Employment Status for Tax Tool (CEST), particularly the missing Mutuality of Obligation (MOO).
Not all contract work involves MOO — a fact that is ignored by the employment status assessment tool. Moreover, there are contractors who provide services to multiple agencies that are not accounted for by the tool.
The questions of CEST tool are not applicable to all contractors. These cannot be adjusted to account for different contractual situations. Due to these shortcomings, a lot of confusion and misunderstandings were created when IR35 reform was introduced in the public sector in April 2017.
Consultation to Address Flaws of CEST
The consultation will likely address all the shortcomings of the CEST tool. HMRC has stated that it will assess consequences for wrongful assessment of employment status. Many contractors had been wrongly assessed due to blanket determinations, which will also be looked into in the consultation.
While HMRC had previously published a paper addressing some of the deficiencies of CEST such as the exclusion of MOO, no solution was issued. The publication paper had been criticised by experts who said that it highlighted a lack of understanding of the core issues relating to the employment assessment tool.
In recent cases involving IR35 reform rules, MOO was regarded as a critical factor in determining the status of the contractor. The failure of HMRC in defending cases may have forced them to address the shortcomings of the employment status tool.
Moreover, HMRC also intends to offer further advice and support to businesses so that they can make accurate assessments. The taxation body has also stated that it will publish guidelines for independent contractors who want to challenge the decision regarding employment status.
However, experts are doubtful whether HMRC will be able to address all the issues surrounding the off-payroll working rules. The taxation body has previously made similar promises but without solving the issue. We have to wait and see whether the taxation body is really able to solve the issues surrounding employment status tool resulting in a fair assessment of contractors.