SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS
1. We recommend that Her Majesty's Revenue and
Customs carry out and publish a detailed assessment of the current
Exchequer protection figure and of the costs that taxpayers incur
in dealing with IR35. This should enable a better assessment of
whether the legislation is having the intended effect and is proportionate.
(Recommendation 1, paragraph 73)
2. Serial contracting is a feature of the modern
British workforce and is supported by both businesses and contractors.
We heard that although IR35 is not a significant issue for businesses,
it can arouse considerable hostility from contractors.
3. Moreover, we note that compliance with the
rules can demand a great deal of time and effort on the part of
contractors. We acknowledge that it can be difficult for individuals
contracting through personal service companies to define their
tax and National Insurance position quickly and accurately because
of the contract-by-contract nature of IR35 and the need for a
sound understanding of case law.
4. We believe that the abolition or suspension
of the IR35 legislation as proposed by the Office of Tax Simplification,
whilst attractive, would be unwise if the legislation has the
Exchequer protection effect claimed for it by Her Majesty's Revenue
and Customs.
5. The current structure and rates of income
tax and National Insurance provide an incentive for taxpayers
to arrange their financial affairs in order to minimise the amount
of tax and National Insurance paid. This has lead to complex legislation,
such as IR35, to counter such arrangements.
6. Whilst we recognise the complexities in merging
income tax and National Insurance and the effect that this may
have on the contributory principle, we recommend that the Government
re-examine the longer term case for combining taxes on income
and National Insurance. (Recommendation 2, paragraph 89)
7. We acknowledge that businesses would generally
resist being made responsible for IR35 assessment, finding the
additional administrative pressure and liability as overly burdensome.
8. We recommend that Her Majesty's Revenue and
Customs look again at whether they require complete and accurate
responses to the "service company" questions on the
personal tax return SA100 and the real time information employer
year end declaration (formerly P35). (Recommendation 3, paragraph 98)
9. If Her Majesty's Revenue and Customs decide
that they need the information from those questions, we recommend
that their completion should be made compulsory, backed up by
the potential for penalties to be charged for incorrect answers
or non-completion. (Recommendation 4, paragraph 99)
10. If Her Majesty's Revenue and Customs retain
the questions, we recommend that they revise the guidance notes
accompanying the personal tax return SA100 and the real time information
year end declaration by employers to make the relationship to
IR35 clearer. (Recommendation 5, paragraph 100)
11. If Her Majesty's Revenue and Customs decide
that they do not need the information gained from the questions,
we recommend that the questions be removed from the tax returns
and declarations. (Recommendation 6, paragraph 101)
12. Her Majesty's Revenue and Customs did not
convince us that the resources currently allocated were sufficient
to ensure compliance with the IR35 legislation.
13. We recommend that Her Majesty's Revenue and
Customs articulate with greater clarity the costs they incur from
IR35 compliance efforts and administration, and the relationship
between those costs and the overall yield gained from the legislation.
(Recommendation 7, paragraph 113)
14. We conclude that many individuals simply
take a risk that Her Majesty's Revenue and Customs will not look
into their employment status, an attitude that is fostered by
the decreasing number of compliance investigations.
15. We recommend that the Contract Review Service
be publicised to greater effect, that Her Majesty's Revenue and
Customs investigate ways to encourage individuals to use the service
and that they look into ways to bolster confidence in its independence
and impartiality. (Recommendation 8, paragraph 123)
16. We accept that the guidance will never be
able to give absolute certainty to taxpayers of their status in
relation to IR35 but we agree that the current guidance is far
from satisfactory.
17. We recommend that Her Majesty's Revenue and
Customs undertake a full consultation on how the Business Entity
Tests could work better to provide greater certainty for taxpayers.
(Recommendation 9, paragraph 134)
18. We commend the motive behind establishing
the IR35 Forum as an opportunity for wider stakeholder engagement.
19. We recommend that Her Majesty's Revenue and
Customs go to greater lengths to demonstrate that they are receptive
to the feedback that is provided through this group and that they
review the breadth of membership. (Recommendation 10, paragraph 140)
20. We are concerned that, in some sectors, individuals
who are providing their services through personal service companies
or, more often, umbrella companies and agencies, have a limited
awareness of how they have been engaged to provide their work
and who it is that has engaged them. This may mean that the individuals
are not aware that they have foregone at least some levels of
employment protection and benefits to which they would be entitled
if they were in conventional employment. We recognise the complexity
of the subject matter, and of the case law underpinning some of
the distinctions made, but believe that it ought to be possible
to present these issues in a concise and understandable manner.
21. We recommend that the Government should develop
and publish a short guide setting out the basic differences between
employment and self-employment. The guidance should be published
across multiple platforms, including both digital and paper, and
should be made available to individuals working in all industries
where intermediaries are prevalent. (Recommendation 11, paragraph 164)
22. We recommend that the Government includes
within the remit of the Low Pay Commission a consideration of
the use of personal service companies and umbrella companies by
lower-paid workers, and the implications for pay, employment rights
and statutory entitlements. (Recommendation 12, paragraph 172)
23. As it is clear from the evidence that abuse
of the expenses dispensations operated by umbrella companies is
taking place, we recommend that Her Majesty's Revenue and Customs
ensure that enforcement action is taken to end these abuses and
to ensure that expenses dispensations are managed correctly. (Recommendation 13,
paragraph 181)
24. We also recommend that Her Majesty's Revenue
and Customs should review its processes for granting and renewing
expenses dispensations, in order to ensure that potentially high
risk organisations are granted dispensations only when appropriate.
(Recommendation 14, paragraph 182)
25. We acknowledge that there will be circumstances
in which public sector organisations, just like private sector
organisations, may need to acquire services from those who operate
through personal service companies. For this reason, we believe
that any blanket restriction on public sector use of personal
service companies would not be beneficial to the delivery of public
services.
26. The Treasury Review of off-payroll appointments
provided only a limited assessment of the extent of such engagements;
large areas of public service provision, such as local government
and some health services, were not included in its scope.
27. We recommend that the Government carry out
an assessment of the extent to which off-payroll engagements are
used elsewhere in the public sector, including by those earning
less than £58,200 per annum. (Recommendation 15, paragraph 210)
28. As the guidance embodied in Procurement Policy
Note 07/12 currently appears to be applied inconsistently across
departments, we recommend that Her Majesty's Treasury take a leading
role in ensuring consistency of application and that it should
go to greater lengths to monitor the implementation of the Procurement
Policy Note 07/12 guidance across Government departments. (Recommendation 16,
paragraph 226)
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