Contractors still on uncertain ground as IR35 rumbles on
This blog was previously published on LinkedIn on 12th June 2018.
If you work as a contractor, or employ them, the ongoing uncertainty around the relevant tax rules may be confusing. The government has now published a consultation paper looking at the application of the off-payroll working rules (also known as IR35) in the private sector.
The aim of the latest consultation is to tackle non-compliance, as the government estimate only 10% of people are applying the rules correctly. It will also look at whether rules applied to the public sector in 2017 should be extended to the private sector.
Under the public sector rules, the public sector body makes the decision of whether a contractor should be classified under IR35 and takes responsibility for deducting tax. Various criticisms have been levelled at this arrangement, including causing delays in projects, failing to raise any extra tax, or driving contractor costs up. However, the government has responded to these issues, saying they are not reflected by the evidence.
The consultation will not look at the underlying principles for off-payroll working, which means the employment status test to determine if a worker should be taxed as an employee or not is not being reviewed.
Meanwhile, a ruling made in January 2017, but which has only now come to light, has cast further doubt on HMRC’s online employment status tool (CEST). The ruling went in the contractor’s favour over a £68,000 tax bill. More importantly, the judge refused HMRC’s position on mutuality of obligation (MOO). Despite HMRC’s insistence on the importance of MOO as one of the three essential tests for IR35, it is not included in CEST.
This could cause problems as HMRC promises to stand by any decision made by CEST, and the tool was used over 575,000 times between March and October 2017. Public sector bodies have also ignored results from CEST and charged tax and national insurance contributions to contractors incorrectly.
The consultation is open until 10 August 2018, and you can read the complete documents, and submit your own response, here - https://www.gov.uk/government/consultations/off-payroll-working-in-the-private-sector
If you are, or soon will be, working off-payroll, we can help with your assessment.