Source · Select Committees · Public Accounts Committee
Recommendation 5
5
HMRC has not made a robust assessment of the additional costs of implementing the reforms.
Conclusion
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 Exit, the COVID-19 pandemic and other changes in government to reduce use of contractors mean HMRC cannot be certain to what extent the increase is due to the reforms. There is also not a complete picture of the costs of the reforms against which the benefits could be compared. The government introduced the reforms because it considered it too costly for HMRC to oversee an effective compliance regime with each individual PSC. HMRC also concluded that hiring organisations could administer the rules for less cost than PSCs doing it themselves. However, HMRC’s modelling of the cost to hiring organisations works out at just £35 a year per PSC, based on a theoretical minimum needed to comply. HMRC does not know what it actually costs all parts of the labour supply chain to administer the reforms in practice. Recommendation: In light of actual experience, HMRC should produce and present to Parliament a cost-benefit analysis of the reforms that reflects the actual costs of compliance to HMRC itself, hiring organisations, workers, and others in the supply chain.
Government Response
Not Addressed
HM Government
Not Addressed
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. HMRC has already revised its initial estimates for the administrative cost of the private sector reform, with the Administrative Burdens Advisory Board (ABAB) commenting that the approach was “sound and reasonable”. 5.3 HMRC is also interested in the amount that organizations have spent to comply with the reform in light of actual experience. HMRC is already exploring this through external research with client organizations, which includes insights into the administrative burden of the reforms. The government has already published research into the short and long-term impacts of the reform on public sector client organizations and research with the private and voluntary sectors is currently being conducted. 5.4 HMRC will consider the findings from this research and will share with the Committee and publish analysis setting out the estimated actual amount spent to comply with the reform by client organizations, alongside estimated additional receipts generated from the reform. Based on the data currently available, HMRC does not believe it will be possible to publish a full cost-benefit analysis taking account of all parties in the supply chain.