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IR35 - Extending off-payroll rules to the private sector could be the straw that breaks the camel’s back, says ARC.

In its response to the government’s proposal into off-payroll working in the private sector, Adrian Marlowe, chairman of ARC said, “Although there is an issue of non-compliance which needs addressing, the proposals as they stand unnecessarily penalise the UK’s thriving contractor workforce, the contractor supply sector and, most importantly, hirers.”


“The evidence on which HMRC bases its proposal is inadequate and certainly insufficient to justify its argument for extension. There has been no full impact assessment and use of the online tool CEST, which has been heavily criticised, remains open to question.”


ARC challenged various aspects of the public sector rules last year; its complaints were to be used as evidence in a Treasury Select Committee enquiry in April 2017, but this was abandoned due to the calling of the last election. “Those complaints remain live; there was no independent scrutiny of the public sector tax proposition before its imposition, contrary to normal practice, yet the current consultation proposal is based upon it. Also in ruling other options as out of scope, the consultation is unnecessarily limiting given the potential impact. Adding all of this up it appears that HMRC intends to proceed regardless”.


“Whilst it’s easy to be negative, there is an issue to be addressed and we encourage HMRC to consider other options that rely on a more traditional position.”


ARC suggests that the IR35 tax rules should apply as the default, but allowing the contractor to establish otherwise for any assignment, perhaps even by using the CEST tool! When combined with a percentage payment on account by the engager, this reversal of the test retains the principle that contractor tax responsibility lies with the contractor. “Our suggestion addresses the reasons for the extension, provides HMRC with a significant income stream to meet the claimed tax avoidance, but without the risks, confusion, lack of clarity and onerous implications of HMRC’s plan.”


ARC is also concerned about timing, proposed to be for April 2019. Marlowe concludes “with uncertainty surrounding Brexit being a real and present danger, an early and insufficiently considered extension as HMRC intends may further unsettle the economy, and even be the straw that breaks the camel’s back for hirers that have the option to use or transfer workforces outside the UK.”

Tags: ARC IR35

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