Bradley Post, Managing Director at RIFT Tax Refunds
It’s difficult to remember a time when HMRC’s flagship “bogus self-employment” countermeasures weren’t causing arguments.
With the public sector still coming to terms with recent rule changes and the official Check Employment Status for Tax (CEST) tool’s decisions being challenged by HMRC themselves, the consultation into a private sector roll-out has already closed. Some are even suggesting that HMRC is set to benefit from the levels of confusion being felt throughout the economy. So, what’s actually going on here?
The rules changes essentially shifted the burden of determining whether IR35 applies to public bodies themselves, or to an agency if applicable. Employers found themselves making snap decisions in bulk, affecting entire classes of workers at once. Blanket assessments that IR35 always applies seemed the safest choice for some, while others blocked off-payroll payments altogether. Employers didn’t trust CEST – and it’s hard to fault them when HMRC didn’t seem to either. Many contractors, faced with the prospect of getting indiscriminately dumped into the IR35 category, got caught up in messy challenges or simply swore off public work. Projects were delayed or scrapped, and filling roles became difficult.
With all this as a backdrop, it’s easy to understand the suspicion over rolling out the same system to the private sector. Private sector businesses are unlikely to have the expertise to apply IR35 rules consistently, and driving them toward CEST could further compound the problem. As HMRC acknowledges, CEST ignores the key legal concept of Mutuality of Obligation (MOO). Essentially, it always assumes that MOO exists when there’s a contract involved. It’s being termed a fundamental misunderstanding of the law by critics. If HMRC’s cornered into admitting CEST is unreliable, 750,000 taxpayers could suddenly discover they’re eligible for reassessment.
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Off-payroll rules insist on “reasonable care” over employment status assessments and, according to some experts, it’s not at all clear that relying on CEST fulfils the requirement. With so many already blanket-assessed without proper consideration, CEST critics argue that HMRC’s more interested in maximising revenue than reaching fair decisions. In fact, judged purely by the additional money rolling in, HMRC might consider the experiment a success. They’d just have to ignore the mistakes being made and careers or industries risking damage.
A shake-up this significant, with so many unpredictable knock-on effects, is a potentially destabilising move. The UK’s departure from the EU is uncharted economic water, with no firm deal on the horizon yet. As IPSE, the Association of Independent Professionals and the Self-Employed points out, rolling IR35 reforms out to the private sector now puts the flexible labour market at risk at a critical time.
RIFT, naturally, is keeping track of what this all means as things develop. With so much still up in the air, and the Brexit boot still to drop, this is a confusing and worrying time for businesses and contractors alike. The rules, and their various interpretations, are in constant flux, and it’s going to be tough for most people to keep up.