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PRISM urges Government to consider all options before extending off-payroll rules to private sector

PRISM is urging the government to consider all the options before releasing its consultation on extending the off-payroll rules to the private sector.

The rules that have already been introduced in to the public sector have resulted in:

  • Increased complexity:
    • For the public sector who do not understand the rules and who have often taken a “no risk” blanket approach to the application of IR35 to the detriment of the workers
    • For the workers who have been given conflicting advice by their accountants and engagers as to whether they are inside/outside IR35 . Many have seen pay reduced to employed levels while acquiring no employment rights
    • For the accounting profession since invoiced amounts do not match amounts paid
    • For agencies since software has been unable to deal with the new rules. This is not yet fixed.

  • Reduced compliance
    • As previously stated the rules are not being applied correctly
    • Workers who feel unfairly penalised are seeking out tax avoidance schemes to retain a net pay figure. HMRC needs to ensure that it is on top of these schemes since the tax leakage is substantial

  • Increased costs
    • The public sector has had to increase rates to retain staff. Although this may be offset in the public sector by extra taxes in the private sector this will not be the case
    • The cost of taking advice (from IR35 experts and lawyers). These costs would not be easy to bear for private sector companies
    • The cost of outsourcing calculations (since software not compatible)

These consequences must be fully understood and considered before pressing ahead with any extension of the rules.

Furthermore, PRISM says private businesses need time to plan and prepare for change and if the rules are rushed in too quickly this will put many businesses under significant pressure as many projects already underway have been costed and accounted for. A significant number of these run over a number of years and so changes brought in too quickly could put many firms under significant financial pressures.

Crawford Temple, CEO of PRISM, commented, We have just seen one of the largest construction companies fail with one reason being cited as increasing costs to deliver. In 2014 there were significant changes that affected the construction industry with many expert commentators warning that the changes would hit many companies in the sector who run long term contracts that have already been costed, Carillion being a good example. This shows the importance of not rushing legislation through and giving businesses a clear direction and timeframe to amend their structures. 

“A good example of this is the notice given to the soft drinks industry on the introduction of the sugar tax. Businesses were given 3 years notice of the change and the market has moved significantly, so much so that the chancellor confirmed that they would not collect as much tax as predicted.

“Business can and will adapt when given clear notice and direction together with adequate time to implement the changes.”

PRISM engaged an independent think tank, The Social Market Foundation, to look at the whole issue of Modern Employment. Their report, Rules of Engagement, aligns with many subsequent comments that legislation is too complex. This complexity results in opportunities for non-compliance as well as an increased cost of enforcement.

Following on from this, PRISM has carried out a review of the subsequent reports and commentary on Modern Employment including the government’s own report carried out by Matthew Taylor. Common themes are emerging that centre around three key areas;

  • Simplification
  • Compliance
  • Enforcement

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