The much dreaded IR35 extension in the private sector had been announced by the Government during Budget 2018. However, much to the relief of the private sector businesses and contractors the extension had been delayed by a year until April 2020.
The reason for the delay can be surmised from the recently released minutes of an IR35 forum meeting held on 30th August. During the meeting, the problems surrounding the off-payroll working rules were discussed.
From the minutes, it’s clear that the forum meeting outcome had influenced the Government’s decision to extend the reform.
In the ‘Summary of Responses’ document, HM Revenue & Customs (HMRC) had stated that it would explain the Mutuality of Obligation (MOO). According to HMRC, there are two possible outcomes to address the issues surrounding MOO.
One is to include information about MOO on the CEST webpage. And the other is to publish another position paper with additional materials.
The previous position paper from HMRC had stated that MOO is already assumed to be present when the need for Check Employment Status Tax (CEST) tool arises. However, many had criticised this assumption with the recent tribunal case outcomes highlighting the flaws of the assumption.
Changes Unlikely Regarding HMRC Stance on MOO
Despite the fact that HMRC has accepted issues surrounding CEST tool, its recent statements reflect that the tax agency has not budged from its stance regarding the tool.
Recently, HMRC had commended that the tool is suitable for most of the situations. The tax body assumes that the tool is simple and easy to use with only a small number of issues.
Before the release the CEST tool, HMRC had stressed that every case should be considered separately. The tax agency had stressed that no electronic tool would be able to judge employment status. However, now the tax body it seems had backtracked from its own statements.
The minutes of the August 30th meeting show that a lot of cases are awaiting litigation. From the outcome of the recent tribunal cases, it can only be assumed that the tax body will face further criticisms. But despite facing a lot of criticism the tax agency has remained stoic about its view regarding MOO.
The minute meeting outcome explains why the IR35 reform has been delayed. But the HMRC’s statements show that the problems may remain when the off-payroll working rules are finally implemented in 2020.