In IR35

With the Government’s consultation on extending reformed off-payroll taxation rules to the private sector drawing to its conclusion, umbrella company trade association the Freelancer and Contractor Services Association (FCSA) has proposed a novel solution that promises to drive up IR35 compliance fairly and transparently.

FCSA’s “Enhanced Reporting and Enforcement” strategy would permit personal service companies (PSCs) to remain responsible for their IR35 status as they presently are in the private sector, although with a duty for reasonable care. The solution would help improve compliance be requiring end-clients to secure their supply chains while simultaneously requiring PSCs, feepayers and mediators to divulge information within the supply chain. HMRC would receive quarterly information reports, the intelligence from which would equip them to proceed with targeted compliance and enforcement actions based on empirical, risk-based compliance data.

According to FCSA CEO Julia Kermode, the new proposal would rebalance the current arrangement by giving both PSCs and end clients “skin in the game”, while increasing compliance by making it commercially advantageous for intermediaries in the supply chain to adhere to the strategy. Perhaps the best selling point is that the solution would be far less burdensome than IR35, as it is already common practice amongst compliant businesses within the labour supply chain to conduct regular audits on suppliers while also maintaining lists of preferred suppliers depending on their compliance benchmarks.

In its response to the IR35 consultation, the FCSA has also debunked HMRC estimates that, without IR35 in the private sector, non-compliance will cost £1.2 billion by 2022/23. It also unmasks as a falsehood HMRC’s claim that a third of contracting professionals operating via PSCs within the private sector are the equivalent of employees.

Kermode explained that the £1.2 billion figure was based on the OBR’s Fiscal Risks Report of July 2017, which the Office openly warned contained “risks in both directions” in the estimates. Current evidence, she said, indicates that the forecasts were exaggerated.

Charging HMRC and the Treasury with using inflated figures to drive through legislation outside of the permissible timetable, Kermode said the public sector reforms had not been a success and had in fact driven up non-compliance. In the worst-case scenarios, contracting workers had been aggressively targeted and conned into disguised remuneration which placed them in considerable financial peril.

She added that the 2017 policy reforms were disastrous and undermined the credibility of plans to implicate them in the private sector. Kermode concluded that their counter-proposal  ‘is more balanced for all parties and is likely to result in correct IR35 assessments and compliance improvements throughout the supply chain.’

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