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Risk of unfairness in proposed extension of ‘off-payroll working’ rules to private sector

Michael Steed

The Association of Taxation Technicians (ATT) is calling for the proposed extension of ‘off-payroll’ working rules to the private sector to be dropped or, failing that, deferred. Contributor Michael Steed, Co-Chair – ATT’s Technical Steering Group.

The new rules have proved controversial in the public sector, and the ATT is concerned that self-employed people working through their own personal service companies (PSCs) may unfairly lose a significant part of their take-home pay under the plans.

The ATT makes its call in a response to an HMRC consultation, ‘Off-payroll working in the private sector’. HMRC are proposing a shift of the responsibility for determining the relevant tax treatment from the PSC to the end client.

PSCs are typically one-person companies which supply an individual’s services to a client. Under the current rules, when a PSC working for a private sector client is paid for the services of the worker it has supplied, the PSC has the responsibility for determining if the ‘off-payroll working’ rules apply.

Where the rules apply, the income from that worker’s services is subjected to broadly the same amount of tax as if the worker had been directly employed by the end client. If the rules do not apply, then the income is subject to corporation tax and can generally be extracted from the PSC by the worker from their PSC in a more tax effective manner.

We have not had a full compliance cycle since the public sector reforms were introduced, so cannot say for sure that they have worked as well as HMRC think in that sector. If HMRC consider that resource constraints mean that these rules have to be extended, we would strongly urge that nothing is brought in before 2020.

Businesses will have enough upheaval to deal with in 2019 with the combined effects of Brexit and the rollout of Making Tax Digital. Small businesses in particular will need time to familiarise themselves with the rules and to get the right systems in place. HMRC’s research report acknowledges that the public sector reform was rushed and we worry that doing the same in the private sector would cause pain for businesses, contractors and indeed HMRC,

HMRC are consulting separately and more widely on employment status following the Taylor Review of Modern Working Practices, and we do not think the two should be looked at in isolation. The Government should instead consider the wider picture such as the taxation of employment verses self-employment before any extension of the off-payroll rules into the private sector goes ahead.”

It is vital that the right decision on tax is taken in the first place given the difficulties that PSCs have in challenging their position. It is expected that many private sector businesses will rely on HMRC’s Check Employment Status for Tax (CEST) tool to determine the position. We have a number of concerns about the quality of the answers that CEST provides and call for measures to ensure that the CEST is developed into something that is reliable and accurate and in which both worker and client can have confidence.

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