But first, a quick update. You may be aware that the government promised a review of the off-payroll working rules (IR35). The HMRC have now announced that changes to the operation of the rules will only apply to payments made for services provided on or after 6 April 2020.
Previously, the rules would have applied to any payments made on or after 6 April 2020, regardless of when the services were carried out. This means organisations will only need to determine whether the rules apply for contracts they plan to continue beyond 6 April 2020.
Wholescale change was always doubtful but this concession at least helps organisations better prepare.
Now, onto my irksome list…
Coming in at 7, I offer up the unhelpfulness of CEST, the HMRC online ‘Check Employment Status Tool’. CEST is there allegedly to help you and contractors work out a person’s employment status, but the reality is rather different.
Put simply, I think it’s a waste of time. CEST is a multiple choice test, and often none of the offered answers feel like the right answer. There are also a few trick questions.
Although HMRC says that it will stand by whatever answer CEST gives you (assuming you input the correct, true facts), my experience and that of many users is that usually the answer it gives is that it’s not sure and you will have to take advice. Also, HMRC says it won’t stand by the answer that CEST gives you if it feels that a contractor has put in place contrived arrangements designed to get an answer from CEST that confirms the engagement is outside IR35. Apparently, this would be treated as deliberate non-compliance and draw higher penalties. What on earth are contrived arrangements? How could we know that? To an extent, many things that businesses do are designed to minimise their tax liability. What will be acceptable and what will be seen as contrived? The jury is out on that, and it leaves things as clear as mud.
(Ironically, I’m told that the CEST questions were written by contractors hired by HMRC because they didn’t have the skills for that in-house.)
I’m not through with knocking CEST yet. This one gets its own ranking because of how much it annoys me.
CEST does not factor in one of the keystones of the employment law status test, namely what we lawyers call ‘mutuality of obligation’. In English, ‘mutuality of obligation’ in a worker’s contract means that they are obliged to turn up for work when they’re scheduled to do so and their ’employer’ is then obliged to pay them. If this ‘mutuality’ exists, the law says this is a strong sign of the relationship being employment. If it’s missing, it points more towards self-employment.
This is a really fundamental part of the employment status legal test. Why on earth it’s not in the CEST programme, I really don’t understand. It could sometimes make all the difference.
At number 9 we have the fact that, where you review a contractor and decide to move them over to become your employee, that opens up a considerable risk. The risk is that HMRC may not thank you for that move, but instead take the view that ’employee’ may have been the true status of this person all along, and delve into their last 6 years. In other words, the change of status is an admission that this person should have been on your PAYE payroll all along.
I suspect that on many occasions HMRC may well have a point here!
However, I do have a suggested way to counter this risk effectively, and if you’d like to know more, just let me know.
At number 10 we have the fact that you may have innocently paid a contractor gross, but if HMRC want paying and arrears of tax, it’s you they will go after, even if it several years back.
The tax that the contractor may have paid HMRC can be credited in your favour if HMRC are willing to do so, but this at their discretion and it’s not a given.
You are the easy target, with deeper pockets than most consultants, and so it’s your head that’s on the block.
The IR35 reforms are creating a lot of pain and hard slog for you hard-working HR professionals. Can help you?
I’m currently working with several clients to get them get ready for new rules in April. There’s lots that I can share with you in terms of practical tips, suggestions for how to play things, risk assessment etc. So if you’re facing the pain of the IR35 reforms and could do with some advice, support, a sounding board, a fresh pair of eyes or just some sympathy, do please get in touch with me.
Email Luke or call 0117 325 0921
Categories: Employment Law