Off Payroll in the Private Sector. A disaster waiting to happen.
On Friday the Government published the long-anticipated HMRC consultation on IR35 compliance in the private sector. As you may be aware, this follows the public sector reform in April 2017, and the announcement in the November 2017 Budget.
You will also be aware if you have read my previous blogs on the subject, the Government’s seemingly blinkered drive to push this through (as they did within the public sector) whilst continuing to ignore the substantial concerns aired by all stakeholders, drives me mad.
HMRC estimates that an additional £410M of income tax and NICs has been remitted since April 2017. This is before they take into account the drop in both corporation tax and dividend tax receipts from all the PSCs that are deemed inside the legislation. The net gain is something nearer £100m which, while clearly is quite a lot of money, I suggest it pales into insignificance when compared to the costs incurred by the Public Sector (in time, increased rates, cost of compliance teams etc) and others in the supply chain (recruiters requiring increased compliance teams, additional payroll systems, additional payroll staff, etc etc etc).
From the consultation it is clear that the Government’s preferred option is to extend off-payroll into the private sector based on the assumption that non-compliance in the sector is widespread and due, to a greater extent, to active avoidance, which needs to be addressed. The consultation suggests that the public sector reforms have been largely successful, and supports the current system for determining employment status, defending the CEST tool (this tool is indefensible!)
Those of you who worked to comply last April will recall that the rules weren’t finalised until 2 weeks before the changes came into force, meaning that it was impossible for the majority of the public sector employers and workers to get to grips with the changes in time and so countless incorrect status decisions followed. And no one really understood why their take-home pay changed. You can read a previous rant here.
I don’t think anyone who hasn’t been directly involved with this will comprehend the time, disruption and cost that these changes have caused, and now it seems the fears of the entire flexible workforce may come true with the rules extended to the Private Sector.
Where self-employed workers have been punished in the Public Sector by taxing them as employees, but with NO EMPLOYMENT BENEFITS, rather than stamping out false self-employment, this will be mirrored across the whole UK economy.
The Government and HMRC seem intent on burying their heads in the sand to the fact that many workers have left multiple critical projects and that costs to the public sector have risen. And one thing never considered with these changes, is the costs to the economy in complying with the changes, which I assure you, probably make any tax gains in the Government’s coffers look small.
This ‘solution’ does nothing to tackle false self-employment and merely punishes those that make this country’s flexible workforce, world-class.
If the Government really wants to tackle false self-employment, it could start by creating a statutory definition of self-employment once and for all.
Or, as seems to be its intent, it could create mayhem across the economy just before the UK needs all the competitive advantage it can gain as we step away from the European Union.
