Source · Select Committees · Public Accounts Committee
Recommendation 21
21
There is also not a complete picture of the costs of the reforms against which...
Conclusion
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 to administer the reforms in practice. While HMRC revisited its cost estimates in light of challenge and recommendations it received from a House of Lords inquiry in 2020, its basic approach has not changed. This means it is still based on a theoretical minimum, and still only covers the private sector.46 HMRC estimated that ongoing costs for the private sector would be £8.4 million a year, and that 36 Q25; 37 Q21; HC Committee of Public Accounts, BBC and personal service companies, Ninetieth Report of Session 2017–19, HC 1522, April 2019 38 C&AG’s Report, para 3.7 39 Qq 25, 75 40 C&AG’s Report, paras 26b, 5.11 41 Q51 42 Qq 36, 37; C&AG’s Report, para 13 43 Q36 44 Q37 45 Q69; C&AGs’ Report, para 3.3 46 Qq 26, 65; C&AG’s Report, para 5.10 Lessons from implementing IR35 reforms 13 240,000 PSCs would need to have their tax status assessed.47 This means an average cost to hiring organisations—to determine the tax status and perform all other administrative activities—of £35 a year per PSC. HMRC’s research has asked surveyed public bodies what they are spending in practice, but it does not have a total estimate for the public sector to compare with its previous estimates.48
Government Response
Not Addressed
HM Government
Not Addressed
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 reflects the actual costs of compliance to HMRC itself, hiring organisations, workers, and others in the supply chain. 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 organisations 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 organisations have spent to comply with the reform in light of actual experience. HMRC is already exploring this through external research with client organisations, 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 organisations 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 organisations, 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.