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Off-Payroll (IR35): from campaigning to preparation

Two weeks ago, a Parliamentary vote sealed the fate of the draconian Off-Payroll Tax, confirming an April 2021 private sector extension. There was notable cross-party support for a legislative amendment proposing a further two-year delay to the private sector rollout, which would have afforded enough time for a comprehensive review of IR35.

Unfortunately, despite a notable rebellion by 13 Conservative MPs, the number of Tory MPs that breached the party’s three-line whip was not enough to swing the vote in our favour.

The outcome marked a disappointing end to a four-year fight to put an end to the damaging Off-Payroll Tax, which began with ContractorCalculator and evolved into the official Stop the Off-Payroll Tax campaign. Nonetheless, our campaign’s supporters have a number of reasons to be proud.

A round of applause for our Off-Payroll campaigners

Though we have not achieved our ultimate goal, the campaign has helped place IR35’s fundamental flaws firmly under the spotlight, drumming up both public and parliamentary support that may effect change one day. We want to thank the campaign’s 3,868 supporters whose efforts have helped us achieve much of the following:

  • More than 70 individual pledges of support from MPs
  • Public backing from many other sector organisations
  • General election manifesto commitments from the SNP and Liberal Democrats to review IR35, subsequently encouraging the Conservatives to do the same
  • Helped inform and educate the Finance Bill Sub-Committee during its Off-Payroll inquiry
  • Investigative journalism and evidence assisted with the resulting hugely powerful Lords report
  • Organisation of two protest days outside Parliament and two drop-in events for MPs
  • Forcing an Off-Payroll delay in 2019, before influencing a further postponement to April 2021
  • Helped secure the tabling of numerous amendments following close collaboration with supportive MPs
  • Secured a vote in Parliament that was supported by all opposition parties
  • Coined the term ‘zero-rights employment’, which accurately depicts the legislation’s primary flaw and helped galvanise cross-party support

Unfortunately, all possible avenues through which to prevent the Off-Payroll Tax have now been exhausted, and Government has once again applied the sticking plaster approach to this flawed legislation. Realistically, to effectively undo the damage caused by IR35, the powers that be first need to acknowledge the fundamental issues concerning the tax treatment of the UK’s self-employed.

But though there is no longer scope for legislative change ahead of April 2021, our efforts have helped establish a potentially valuable dialogue with Government. The campaign yielded multiple invitations to discuss Off-Payroll in person with the Financial Secretary to the Treasury and HMRC’s head of the Off-Payroll programme.

HMRC has already reached out to me following last week’s outcome. When further meetings with the Treasury resume, we will continue to hammer home the injustice of IR35 while offering practical solutions.

Industry attention turns to Off-Payroll compliance

For contractors and end-clients, attention must turn to mitigating the impact of Off-Payroll, for which compliance is key. The extra time afforded by the 12-month postponement now means many businesses will likely wait until around September to establish compliance protocol.

In the meantime, firms should be careful to avoid making hiring decisions that could prove problematic at a later date and may decide to issue shorter contracts until an Off-Payroll compliance plan is in place. Hirers are specifically advised not to agree contracts that overlap into April 2021 and beyond, unless it is essential. Doing so would require firms to plan for Off-Payroll earlier than otherwise would be necessary, which isn’t ideal for companies currently navigating the fallout from Covid-19.

Companies that heavily rely on insurance products as an alternative to robust compliance will be playing a dangerous game. Insurance is based around unforeseen, fortuitous events. Failing to pay the correct amount of tax does not meet this criterion, so the chances of compensation will be particularly slim for firms that have failed to protect themselves with rigid compliance processes.

In the event of an HMRC investigation, companies shouldn’t simply expect an underwriter to pick up the tab, particularly if they have limited evidence to support their original status determination. I’m aware of multiple insurance products that will be available in the near future. Fortunately, hiring firms have plenty of time to make considered decisions and do their homework, because the tax liability doesn't begin until April 2021.

History has shown that HMRC is not averse to springing last-minute surprises where compliance with impending legislation is concerned, and knowledge acquired during campaigning suggests that the taxman may yet shift the goalposts slightly. We will keep our readership alert to any developments, to which hiring firms are advised to pay close attention.

Challenges for contractors and clients

Unfortunately, the build-up to the private sector reform and the prior public sector ‘dress rehearsal’ have both shown that many hiring organisations are still reluctant to abide by their compliance requirements. Where clients are demonstrating little inclination to adapt to their new responsibilities, the onus may be on contractors to educate them about the importance and advantages of compliance.

Evidence has shown time and again that undertaking accurate status assessments and agreeing compliant ‘outside IR35’ contracts provides companies with a competitive edge in the contract market, while also negating risk and helping to minimise the cost of each engagement.

The task for contractors is to help their clients realise that ongoing due diligence is essential, not least because it will effectively combat the threat of an HMRC challenge that for many companies has incited a risk-averse approach. Where firms maintain plans to shirk their responsibilities, for example by refusing to engage workers off-payroll, contractors may well decide to vote with their feet.

The biggest challenge for hiring firms will be securing trustworthy compliance advice. IR35 legal experts are relatively scarce, and few are likely to emerge soon when you consider the fact that HMRC takes 3-5 years to train its status inspectors. This itself would appear an insufficient timeframe given HMRC’s recent record in IR35 tax tribunals.

The UK’s pool of IR35 legal minds may be too small to adequately satisfy HMRC’s burdensome compliance demands, but our IR35 Shield compliance solution is on hand to instantly provide accurate status assessments, tailored guidance and the vital ongoing compliance process required for each contract.

With HMRC status challenges typically preceding a tax investigation spanning back four or six years, long-term thinking is fundamental to a successful tax defence. IR35 Shield is focused on the long game, providing IR35 defence strategies that ensure ample protection for businesses unfortunate enough to be challenged by the taxman years down the line. This involves the collation of crucial evidence throughout the engagement, thereby reinforcing the original status decision and ensuring firms don’t turn up at tax tribunals empty handed.

Further enhancements will be made to IR35 Shield’s offering prior to April 2021 which will likely fundamentally transform the way the market operates. These enhancements will supplement a solution that already provides answers for hirers, contractors, agencies, accountants and legal firms, encompassing the holistic approach to compliance that the Off-Payroll Tax necessitates.

Published: 13 July 2020

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