Source · Select Committees · Public Accounts Committee
Recommendation 22
22
HMRC does not have estimates for the costs incurred by organisations other than hiring bodies.
Conclusion
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 work before and after the reforms.50 In estimating the administrative burdens of the reforms to the private sector, HMRC also assumed that hiring organisations can administer the rules for less cost than PSCs doing it themselves.51 However, HMRC acknowledges that this assumption was based on PSCs applying the rules correctly under the previous regime, which is not what was happening in the real world—indeed, in 2016, HMRC estimated that only 10% of PSCs were compliant.52 It is also not evident that PSCs will no longer incur any administrative costs, particularly where only part of their business is determined as within the IR35 rules, which creates additional complexity and therefore cost.53 47 Q 39; Written evidence submitted by HMRC dated 10 March 2022 48 Q60 49 Q70; C&AG’s Report, para 1.11 50 Qq 59–61 51 Qq 59, 65; C&AG’s Report, para 5.10 52 Q65 53 Qq 81–82 14 Lessons from implementing IR35 reforms
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.