Payroll Partner discusses IR35 rules with the House of Lords
Armstrong Watson’s Partner and Head of Payroll Services, Karen Thomson, represented the Administrative Burdens Advisory Board (ABAB) to give oral evidence to the House Of Lords Finance Bill Sub Committee, on the subject of off payroll working on the afternoon of 2 March 2020 in London.
The purpose of this Committee Meeting was to allow the Lords to further understand the impact on business of the Off Payroll Working (IR35) rules due to come into force from April 2020.
Also giving evidence was Bill Dodwell, Tax Director for the Office of Tax Simplification (OTS), and also a member of ABAB.
The questions from the House of Lords representatives included;
- Is there sufficient guidance?
- Is the CEST fit for purpose?
- Is the projected cost of £14.4m a fair forecast?
- Was it fair that contractors had to now be treated as “deemed employees with deemed income” but not receive any of the employment rights an employee would benefit from?
- What are/will companies do in respect of these changes i.e. will they no longer use PSCs, will PSCs walk away etc?
You can view the evidence given from both Karen and Bill here.
Karen’s evidence included;
- The rules are complex whether you are the contractor or the business;
- Guidance has been late in its arrival and not always user friendly, however is improving all the time;
- In light of this late guidance, the new penalty regime that will have a soft landing for genuine mistakes was both necessary and welcome;
- Small businesses might be the object of big business bullying tactics, even though they do not need to consider the rules;
- When asked if small businesses should be excluded, Karen agreed they should; however cautioned that small businesses still needed to know about the changes to know it didn’t apply to them and they will now need to advise those in their supply chain they are deemed small;
- Karen did accept that the tax treatment would now be fair between PSCs and employees, but acknowledged that without employment rights, the PSCs would not enjoy other benefits such as sick pay and holiday pay. Karen went on to say that if the Government reconsidered this status, then the admin burden of administering employment rights to this group of workers would be very burdensome;
- When asked about CEST, again Karen said there had been massive improvements and a number of members of ABAB had been helping HMRC in this area. However, she also acknowledged more work had to be done, especially when the tool could not provide a status determination;
- On the cost of £14.4m Karen was cautious, as the model used was the same as for real time information which was not a true representation of the cost to business;
- When asked what businesses might do, Karen shared a number of possibilities based on anecdotal evidence from the “ground”, namely;
- May refuse to use PSCs;
- Make PSCs become an employee on potentially reduced income;
- PSCs deciding not to work for any business in the supply chain unless small and finally;
- May seek to re-negotiate contracts that would limit some of the clauses and mean the PSC fell outside IR35; but time would tell.
Karen said of the experience, “it was a privilege to represent the Administrative Burdens Advisory Board and my sincere thanks to Dame Teresa Graham (Chair of ABAB) for asking me to do this. Being able to share real experiences from working with clients of Armstrong Watson LLP, with the Lord’s representatives will hopefully help the Government and HMRC understand what more might be done to help this land smoothly. “