IR35 Tax Reforms

Debate between John Glen and Ruth Cadbury

Thursday 4th April 2019 Westminster Hall

[John Glen]

I am not aware of any distribution analysis, but I will check with officials, and if I can give clarification on that, I will do so by letter.

Non-compliance in the private sector remains a persistent and growing problem that, if left unchecked, will cost the taxpayer as much as £1.3 billion by 2023-24, according to the Government’s estimates. In last year’s Budget, the Government announced that we will extend the reform of off-payroll working rules to all sectors, including the private and voluntary sectors. That will help to address the issue of non-compliance and to ensure there is a level playing field for the public sector and other sectors when hiring contractors.

The Government have listened to the views of individuals and businesses and have decided that the reform will apply only to medium and large organisations. It will not extend to the smallest 1.5 million businesses. In addition, it will take effect from April 2020, to give businesses and other organisations time to prepare. The Government are consulting on the detailed design of the planned reform, and we are listening carefully to the representations made. Our aim is to provide the individuals and organisations concerned with greater certainty about how the off-payroll working rules will operate from April 2020 in all sectors, including about the actions they can take to prepare for the changes.

Hon. Members talked about HMRC’s check employment status for tax—CEST—tool and raised some questions about its effectiveness. CEST was developed in consultation with stakeholders, including tax specialists and contractors, to assist individuals and public authorities in making the correct determinations. HMRC will stand by the result of CEST, provided the information entered is accurate and in line with HMRC guidance. It gives an answer in 85% of cases, and where it does not, more detailed guidance and support are available through a telephone number for individuals.

To support organisations in applying the rules, HMRC will continue to review and improve CEST. HMRC has already held user research sessions, and will continue to work with stakeholders over the coming months to ensure that the tool and the wider guidance suit the needs of all sectors, and to address specific points raised during the consultation. Enhancements will be tested and rolled out before the reforms are introduced in 2020. I asked officials for greater clarity on what that is likely to mean, and we are talking about improved guidance, better phraseology and improved language that gives greater certainty to individuals who make inquiries.

The hon. Member for Brentford and Isleworth (Ruth Cadbury) mentioned the issue of blanket decisions in the example she gave. Members have expressed concern that businesses might take a blanket approach to applying the off-payroll working rules to contractors without looking at the facts of individual cases. Independent research suggests that has not generally been the case in the public sector, where the reform has been in place since April 2017. I cannot account for every case, but research was done to evaluate the issue because it was a legitimate area of concern. The vast majority of public bodies are making assessments on a case-by-case basis. I have looked into how that research was done— HMRC commissioned an external independent organisation to speak to central Government Departments, the NHS and local government departments to ascertain that.

Having listened to people’s concerns, we included proposals in our recently published consultation to help to ensure that processes are put in place for individuals to resolve disputes with their engagers directly and in real time. The proposals would put a legal requirement on engagers to have a status disagreement process in place, and would require them to consider evidence provided by an individual contractor and review their status determinations accordingly. HMRC is committed to working with organisations to ensure they make the correct status determinations, and will publish detailed support and guidance to help organisations prepare well ahead of April 2020.

[Ruth Cadbury]

I thank the Minister for his response. We look forward to that research. I hope he checks it with bodies such as the NHS and ensures that the different levels and layers of the NHS are looked at. I have been given evidence that different trusts are doing different things and that NHS Improvement and the framework providers in the NHS are providing conflicting advice, which of course causes a problem for agencies and for workers themselves.

[John Glen]

I am very happy to look into that and to see that that work is forensic enough to give a reliable read-out on actual behaviour.

Members also questioned whether there might be an additional burden on businesses that hire contractors, and raised concerns about introducing the reform at this time of uncertainty. As I mentioned, the reform simply enforces legislation that was introduced in 2000. Fundamentally, I believe it is fair that two people who work in a similar way pay broadly the same tax, and the businesses that hire individuals are best placed to determine whether these rules apply. Medium-sized and large organisations will have until April 2020 to implement the changes, and we will keep the existing rules for the smallest organisations, minimising administrative burdens for the vast majority of businesses and other organisations.

I turn now to employment rights, which the hon. Member for Oxford East (Anneliese Dodds) mentioned. I, too, have missed our exchanges in Delegated Legislation Committees, but it is good to be talking about another topic. Falling within the off-payroll working tax rules does not currently change an individual’s status for employment rights, as there is currently no direct link between employment taxes and those rights.

The Matthew Taylor review took place in summer 2017, and the good work plan was published in December 2018. As set out in that plan, the Government agree that reducing the differences between the tax and rights frameworks for employment status to a minimum is the right ambition. We will bring forward detailed proposals this year—I recognise the need for this to happen quickly—for how those frameworks could be aligned. In the meantime, it is right that the Government take action to improve compliance with existing rules. Those who wish to challenge their employment status for rights can take their case to an employment tribunal, regardless of their tax status.

Members suggested that there is a link between the off-payroll working rules and disguised remuneration schemes. Disguised remuneration arrangements have nothing to do with the off-payroll working rules; individuals are able to comply with those rules without entering into contrived avoidance. Trying to get around rules that are designed to ensure that everyone pays their fair share is not an excuse to use a tax avoidance scheme.

There was mention of some celebrated court cases. It is not appropriate for me to comment on individual cases. Obviously, many of those cases are very complex; only the very complicated cases make it to court. HMRC will work with businesses to ensure they are equipped to make the right determinations.

I want to be clear that this reform does not introduce a new tax but seeks to strengthen compliance with existing tax rules. The Government value immensely the contribution of the self-employed and flexible workers—various Members have made the point that they make up a much larger proportion of the UK workforce—and intend to protect them, but there are many legitimate commercial reasons for people to work through limited companies and for businesses to engage those companies, and that should not need to change. The off-payroll working rules exist to ensure that those individuals pay a fair amount of tax, and the Government believe it is right that we address non-compliance through these reforms.

I hope I have addressed the points that were raised. If there are any points I have not dealt with, I would be very happy to take on board the final remarks by the hon. Member for Rutherglen and Hamilton West and to write to any Member in lieu of responding appropriately.

Oral Answers to Questions

Debate between John Glen and Ruth Cadbury

Tuesday 3rd July 2018 Commons Chamber

[John Glen]

I have not personally had any such discussions, but the Exchequer Secretary will have done. We are supporting that business, and many others up and down the country, through the comprehensive industrial strategy that we are rolling out in different sectors.

[Ruth Cadbury (Brentford and Isleworth) (Lab)]

10. What recent discussions he has had with the Secretary of State for Education on changes in the level of funding per pupil in schools since 2010.