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Off-payroll working in the private sector: KPMG’s consultation response

Off-payroll working in the private sector

KPMG has submitted its views on HMRC’s consultation on off-payroll working in the private sector.

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Off-payroll working: what are the issues?

The Government’s view is that ‘IR35’ is not working effectively.

The cost of non-compliance in the private sector is expected to increase to £1.2 billion per year by 2022/23, and HMRC’s consultation on off-payroll working in the private sector invited comments on how the regime can be strengthened.

Perhaps unsurprisingly, the consultation led with the option of extending the 2017 public sector reforms to the private sector.

However, two alternative approaches were also put forward for consultation:

  • Encouraging or requiring businesses to ensure ‘IR35’ compliance in their labour supply chains; and
  • More stringent record-keeping requirements on businesses that make payments to off-payroll workers.

KPMG’s view

KPMG’s Employment Tax and Employment Legal Services experts responded to the consultation.

A copy of our response is available here.

The key points are summarised below.

  • Learn from the public sector experience

Whether the 2017 public sector reforms are extended to the private sector should be based on a thorough review of their effectiveness.

In our view, a full post-implementation review of how those reforms have performed is required to update HMRC’s recently commissioned research in this area. This can only be done once the public sector reforms have been through an entire compliance cycle (i.e. after 31 January 2019).

If the 2017 public sector reforms are to be replicated in the private sector, lessons must be learned from the operational challenges experienced in order to minimise the burden on businesses, whilst acknowledging nuances in the private sector and the challenges of assessing employment status, including the effectiveness of the CEST tool and how recent FTT decisions are accommodated.

  • Consider employment law reform

Fundamentally, isolated reforms have the potential for adverse interactions which reduce their effectiveness and increase the cost of compliance.

Any major changes to ‘IR35’ in the private sector should take account of the Government’s consultation on employment status in response to the Taylor Review of Modern Working Practices.

Changes in these areas should be considered holistically and in the context of a wider debate on how labour is taxed in the 21st century.

  • Delay any change until April 2020 at the earliest

In addition to the time required to fully review what public sector reform has delivered, any changes should take account of the lead time businesses will need to prepare.

Our discussions with large corporates suggest that at least 18 months will be required to plan for and implement the consultation’s lead option.

We therefore believe that April 2020 is the earliest date from which any reforms should be introduced.

  • Enhance the current compliance regime

Extending the public sector ‘IR35’ reforms to the private sector might not necessarily be the best approach.

The current compliance regime could be strengthened by requiring:

  • Periodic reporting of off-payroll payments by engagers; and
  • Elevated self-assessment disclosures on the application of ‘IR35’ to engagements from workers providing their services through personal service companies.

Giving more attention to these areas could provide a more focussed and proportionate approach to improving compliance.

What happens now?

HMRC is currently analysing submissions to the consultation and will publish its responses in due course.

Given the estimated tax loss in the private sector and noting the short lead-in time that was afforded to those in the public sector, businesses should start to consider what worker populations might be affected, and what changes might be required to implement any such reforms.

If you would like to talk through any aspects of the consultation or KPMG’s response, please contact Colin Ben-Nathan, Anne-Marie Robinson or Caroline Laffey.

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