Recommendations & Conclusions
22 items
2
Recommendation
Second Report - Lessons from implementi…
Not Addressed
We are concerned that it is too difficult for workers to challenge incorrect status determinations. The absence of a clear definition of self-employment, and limited access to relevant personal information for each contractor, can make it challenging for hiring organisations to make status determinations confidently. Hiring organisations can face significant …
Government response. The response discusses the Office for Students (OfS) consulting the sector on its activity, improving communications with providers, and commissioning qualitative research. It does not address the recommendation about a fast and independent process for contractors to resolve disputes over …
HM Treasury
3
Conclusion
Second Report - Lessons from implementi…
HMRC is not doing enough to understand the impact of the reforms on workers and labour markets. The complexity of the rules, and the perceived risk to hiring organisations of failing to comply with them, may lead to changes in behaviour by both workers and hirers. In some cases, contractors …
Government response. 3.1 The government agrees with the Committee’s recommendation. Target implementation date: December 2023 3.2 Although the government agrees with the Committee’s recommendation, it disagrees with the Committee’s conclusion. 3.3 The government has already published research on the short and long-term …
HM Treasury
4
Conclusion
Second Report - Lessons from implementi…
We are not confident that HMRC works proactively to establish whether any sectors have been affected disproportionately by the reforms and why. Issues in UK supply chains have been widely reported in recent months, for example in fuel and groceries. It is unclear to what extent the IR35 changes may …
Government response. 4.1 The government agrees with the Committee’s recommendation. Target implementation date: December 2023 4.2 HMRC undertook an extensive programme of customer education and support during the implementation of the reforms and continues to engage with stakeholders, including through the Employment …
HM Treasury
5
Conclusion
Second Report - Lessons from implementi…
HMRC has not made a robust assessment of the additional costs of implementing the reforms. HMRC states that the IR35 reforms increased tax revenues by increasing the number of people employed for tax purposes, but it is unclear to what extent employment patterns have been affected by other factors. EU …
Government response. 5.1 The government agrees with the Committee’s recommendation. Target implementation date: December 2023 5.2 HMRC follows a well-established methodology for estimating administrative burdens, which looks at what organizations are required to spend in order to comply with their tax obligations. …
HM Treasury
6
Recommendation
Second Report - Lessons from implementi…
Despite years of reforming the IR35 rules, there are still structural problems with how they work in practice. The IR35 rules do not work well with the realities Lessons from implementing IR35 reforms 7 of contracting, both in determining workers’ tax status and in resolving issues when mistakes have been …
Government response. 6.1 The government agrees with the Committee’s recommendation. Target implementation date: to be confirmed 6.2 HMRC has already implemented a process to reduce the circumstances where it collects tax twice in respect of the same engagement in cases of non-compliance. …
HM Treasury
1
Conclusion
Second Report - Lessons from implementi…
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Revenue & Customs (HMRC) regarding the implementation of off-payroll working tax rules, known as IR35.1
Government response. Based on a report by the National Audit Office, the Committee took evidence on 30 March 2022 from HM Revenue & Customs. The Committee published its report on 25 May 2022. This is the government’s response to the Committee’s report.
HM Treasury
7
Conclusion
Second Report - Lessons from implementi…
We asked HMRC what level of non-compliance it expected there to be in smaller public bodies, and whether well-resourced departments struggling to comply is a worrying sign for the reforms more generally. HMRC suggested that smaller organisations may be better placed to comply, if key personnel involved in compliance are …
HM Treasury
8
Conclusion
Second Report - Lessons from implementi…
The absence of a clear definition of self-employment, and limited access to relevant personal information for each contractor, can make it challenging for hiring organisations to make status determinations confidently.13 Hiring organisations can face significant financial consequences if they incorrectly assess someone as self-employed, and this risk may affect their …
HM Treasury
9
Conclusion
Second Report - Lessons from implementi…
Since 2021, individuals have had the statutory right to raise a dispute with their hirer if they disagree with their status determination, and the hiring organisation must respond formally within 45 days. If both parties continue to disagree, the worker does not have an independent route for further appeal, but …
Government response. 2.1 The government agrees with the Committee’s recommendation. Target implementation date: December 2023 2.2 The best result for workers, engagers and the Exchequer is where employment status is treated correctly from the start. The government remains confident that the reforms …
HM Treasury
10
Conclusion
Second Report - Lessons from implementi…
We asked HMRC to what extent it considered that hiring organisations were treating workers unfairly, for example by using ‘blanket assessments’ instead of assessing workers on a case-by-case basis. HMRC told us it had seen limited evidence of blanket assessments, and that around 500 workers had contacted them because they …
Government response. 4.3 HMRC has also already provided additional support to address inherent challenges faced by specific sectors where these have been identified. For example, it has produced sector-specific factsheets for the transport and construction sectors and has published guidance on umbrella …
HM Treasury
11
Conclusion
Second Report - Lessons from implementi…
Evidence received from stakeholders indicated that many of the challenges with IR35 stem from underlying issues in tax administration.19 HMRC told us that it would be simpler and more straightforward to administer the tax system if tax liabilities of employed and self-employed were aligned, but that this is ultimately a …
Government response. 6: PAC conclusion: Despite years of reforming the IR35 rules, there are still structural problems with how they work in practice. 6: PAC recommendation: HMRC should review how the system is working and whether it can be made more efficient …
HM Treasury
12
Conclusion
Second Report - Lessons from implementi…
The IR35 reforms made hiring organisations responsible for determining a contractor’s tax status.21 HMRC told us it interprets IR35 as applying to individual engagements, but that courts have not always taken the same approach. In particular, recent court rulings suggest that it may be necessary to consider a contractors’ work …
Government response. 6: PAC conclusion: Despite years of reforming the IR35 rules, there are still structural problems with how they work in practice. 6: PAC recommendation: HMRC should review how the system is working and whether it can be made more efficient …
HM Treasury
13
Conclusion
Second Report - Lessons from implementi…
The realities of contracting also mean that hiring organisations will likely not have the data required to identify and correct mistakes when workers have been incorrectly engaged on a self-employed basis. In particular, the hirer would not normally collect a worker’s National Insurance number if they are self-employed. However, if …
Government response. 6: PAC conclusion: Despite years of reforming the IR35 rules, there are still structural problems with how they work in practice. 6: PAC recommendation: HMRC should review how the system is working and whether it can be made more efficient …
HM Treasury
14
Conclusion
Second Report - Lessons from implementi…
Furthermore, the current legal framework does not let HMRC offset liabilities for non- compliance against any taxes already paid by workers and their PSCs.24 In law, HMRC must collect the full taxes that should originally have been paid from the hiring organisation. This means that HMRC collects tax twice on …
Government response. 6.1 The government agrees with the Committee’s recommendation. Target implementation date: to be confirmed 6.2 HMRC has already implemented a process to reduce the circumstances where it collects tax twice in respect of the same engagement in cases of non-compliance. …
HM Treasury
15
Conclusion
Second Report - Lessons from implementi…
The complexity of the rules, and the perceived risk to hiring organisations of failing to comply with them, could lead to changes in behaviour by both workers and hirers. For example, while firms must assess each role individually and not make blanket assessments, they are perfectly within their rights to …
Government response. 3. PAC conclusion: HMRC is not doing enough to understand the impact of the reforms on workers and labour markets. 3: PAC recommendation: HMRC should conduct and publish specific research into the impacts of the IR35 reforms on contractors and …
HM Treasury
16
Conclusion
Second Report - Lessons from implementi…
Stakeholders have for some time reported that risk-averseness of hiring organisations could result in a decision to stop engaging freelance contractors.30 More recently, surveys conducted by organisations that represent or provide tax advice to contractors have found substantial numbers of contractors reporting that their last clients either completely ceased using …
Government response. 3. PAC conclusion: HMRC is not doing enough to understand the impact of the reforms on workers and labour markets. 3: PAC recommendation: HMRC should conduct and publish specific research into the impacts of the IR35 reforms on contractors and …
HM Treasury
17
Conclusion
Second Report - Lessons from implementi…
HMRC has not carried out research into these types of wider impacts from the perspective of workers, and is not convinced by evidence provided by others even where this indicates there may be significant issues.33 In its own research, HMRC has also presented the reforms as a success despite consistently …
Government response. 3. PAC conclusion: HMRC is not doing enough to understand the impact of the reforms on workers and labour markets. 3: PAC recommendation: HMRC should conduct and publish specific research into the impacts of the IR35 reforms on contractors and …
HM Treasury
18
Conclusion
Second Report - Lessons from implementi…
In addition to understanding the impact of the reforms on the economy and workforce as a whole, it is also important to establish whether any sectors have been disproportionately affected and what additional guidance or support may be needed. For example, issues in UK supply chains have been widely reported …
Government response. 4: PAC conclusion: We are not confident that HMRC works proactively to establish whether any sectors have been affected disproportionately by the reforms and why. 4: PAC recommendation: HMRC should proactively identify and work with sectors that have been particularly …
HM Treasury
19
Conclusion
Second Report - Lessons from implementi…
It is not yet clear to what extent the IR35 changes may have contributed to these issues by affecting hiring practices and decisions made by contractors in key parts of the workforce.38 HMRC believes that the reforms are unlikely to have had a material impact on the flexibility of the …
Government response. 4: PAC conclusion: We are not confident that HMRC works proactively to establish whether any sectors have been affected disproportionately by the reforms and why. 4: PAC recommendation: HMRC should proactively identify and work with sectors that have been particularly …
HM Treasury
20
Conclusion
Second Report - Lessons from implementi…
HMRC states that the IR35 reforms increased tax revenues by increasing the numbers of workers deemed to be employed for tax purpose. It has estimated that there was a net increase in tax revenue of £250 million during the first year of the reform, and an additional 50,000 individuals put …
Government response. HMRC states that the IR35 reforms increased tax revenues by increasing the numbers of workers deemed to be employed for tax purpose. It has estimated that there was a net increase in tax revenue of £250 million during the first …
HM Treasury
21
Conclusion
Second Report - Lessons from implementi…
There is also not a complete picture of the costs of the reforms against which the benefits could be compared. HMRC has estimated the cost to hiring organisations, but its modelling is based on a theoretical minimum needed to comply, rather than an estimate of what it actually costs organisations …
Government response. 5: PAC conclusion: HMRC has not made a robust assessment of the additional costs of implementing the reforms. 5: PAC recommendation: In light of actual experience, HMRC should produce and present to Parliament a cost-benefit analysis of the reforms that …
HM Treasury
22
Conclusion
Second Report - Lessons from implementi…
HMRC does not have estimates for the costs incurred by organisations other than hiring bodies. The government introduced the reforms because it considered it too costly for HMRC to oversee an effective compliance regime with each individual PSC.49 It is not clear what HMRC’s own costs are for its compliance …
Government response. 5: PAC conclusion: HMRC has not made a robust assessment of the additional costs of implementing the reforms. 5: PAC recommendation: In light of actual experience, HMRC should produce and present to Parliament a cost-benefit analysis of the reforms that …
HM Treasury