Most of the main political parties are promising to review IR35 in their election manifestos. Until then, however, it seems there are some real problems to iron out.
Something’s still rotten in the state of off-payroll working. When HMRC introduced its Check Employment Status for Tax (CEST) tool, it was a direct response to those who were struggling to interpret the new rules. CEST, it was hoped, would provide the right employment status answer provided you entered the right data.
It didn’t quite work out that way. Now, with updates to off-payroll rules due to come into force in April, CEST has been updated to improve the situation. For many, it hasn’t.
Off payroll recap
Off-payroll, or IR35, rules apply to workers who provide services through an intermediary such as an umbrella company. They ensure that workers who would be employees but for the existence of the intermediary are taxed as such.
To distinguish the genuinely contracted from the, to all intents and purposes, employed is a matter of applying several tests. We’re not about to revisit them all now, but as examples, any contract which includes the following clauses is likely to fail the IR35 test:
- Specifies start and finish times
- Specifies the days the contractor is expected to work
- Includes clauses which show a degree of control or supervision of the contractor
- Offers regular or guaranteed work
- Enables the client to veto work the contractor wants to take from other clients or places the contractor under an obligation to accept work from the client (the so called “MOO” – mutuality of obligation)
How IR35 is changing
To date, the burden of deciding when IR35 applies has fallen on the client if in the public sector, and on the intermediary if in the private sector.
From 6 April 2020, however, that changes. All public sector and medium/large-sized clients will be responsible for deciding if the rules apply. Intermediaries will only retain responsibility in respect of small clients.
With a new burden on medium and large employers, HR and payroll departments are eager to have a CEST tool that makes establishing worker status easy. But it seems recent changes still leave the tool falling short.
Seb Maley, CEO of contractor insurance firm Qdos told Personnel Today that “CEST still isn’t fit for purpose”. Tom Wallace, head of tax at dispute advisory WTT Consulting is reported as saying, “[I’m] not really sure that is much of an update in terms of getting CEST to give a reliable status determination.” And The Register chose the blunt option, describing CEST as “still crap.”
One key bone of contention is MOO. Speaking to The Register, Andy Chamberlain, deputy director of policy at IPSE, said “We have grave reservations about CEST. We’ve looked at the updated version and spoken to HMRC and we’re still not satisfied it is accurate. It still does not test the mutuality of obligations.”
Accurate when it’s easy
Frustratingly, CEST seems to be reliable when decisions are simple and grey areas aren’t especially grey. When there are genuine judgement calls to be made – the time when CEST should be proving of maximum value – it appears far less reliable.
By introducing the new CEST now, however, HMRC has at least given companies the opportunity to assess their contractors and clarify their status months ahead of the new rules. That should help to ensure that, come April, the instruction given to payroll companies regarding the tax and NI of contractors, will be accurate.
To discuss the impact of IR35 on your payroll, talk to us now.