Engagers respond to IR35 proposals

HMRC have released a report which was prompted by the IR35 consultation last year following the Summer Budget 2015

The document sets out how businesses responded to some suggestions proposed in the discussion document, such as the transfer of tax responsibility from the PSC to the engager, and the use of SDC (supervision, direction, and control) as a single test for employment status.

The authors of the document do not appear to have a particularly firm grasp of the subject they are writing about, frequently referring to PSCs as ‘employees’ and seeming surprised by the fact “there was a common assumption particularly evident in smaller organisations that subcontractors will deal with their own tax and that this is in the ‘nature’ of being self-employed. Therefore many organisations, particularly smaller ones, stated that they do not ask about tax status.”
This is indeed “in the ’nature’ of being self-employed” and should be of no surprise to HMRC.

Furthermore, given a “general resistance to the proposed responsibility shift”, in that it is “seen as undermining their business and the relationship with self-employed workers”, it is interesting still that HMRC have in fact proposed this again for the public sector, with a consultation on the matter currently open. It would seem that they already have the answer of how organisations feel about shifting status responsibilities, but are going to go ahead with it anyway, deeming the current consultation merely an exercise (and one which they have already carried out).

Some of the concerns include an increased administrative burden, increased costs, and the natural tendency towards placing their temporary workers on payroll to avoid the risk which would ultimately reduce suitable staff and flexibility. With regards to introducing a test based on SDC alone, “the new test was not felt to provide greater certainty”.

The two proposals seem in juxtaposition; implementing an SDC test which looks to determine a contractor’s status based on control, whilst simultaneously removing control from the PSC (a business in its own right) to the engager by way of their tax responsibilities.

Perhaps however, whilst to the businesses and PSCs to which the changes will affect, the proposals are “not supported”, to HMRC the results may be good news. Businesses have suggested that they would be likely to automatically place their temporary workers on payroll and that the SDC test “would encompass the vast majority of subcontractors”. Both of these outcomes would be bad news for PSCs and engagers, but both of these outcomes would also increase the tax revenue to the Exchequer, the ultimate goal of reforming the Intermediaries’ Legislation.