Source · Select Committees · Public Accounts Committee
Recommendation 12
12
Accepted
IR35 reforms have shifted employment status burden to employers, moving many to payroll.
Conclusion
We asked HMRC about how it is addressing issues created by the implementation of reforms to the IR35 rules on off-payroll working. HMRC said that the reforms to IR35 shift the burden of determining employment status from workers to employers. HMRC told us that it provides tools and guidance to ensure employers can apply the correct tax treatment to their workers.38 We asked about the impact of the reforms on certain sectors, particularly the broadcasting sector, and the restrictions the rules were placing on people working as self-employed contractors. We also raised concerns that the complexity of the rules was driving some companies overseas.39 HMRC said that since the reforms, employers have moved between 150,000 and 200,000 people from being paid through personal service companies to being on the company’s payroll.40 It said it would be HM Treasury’s role to review the impact of IR35 as a policy, although HMRC keeps under review how it is administering the policy.41
Government Response Summary
The government agrees and states the recommendation is implemented. HMRC remains committed to understanding the impacts of off-payroll working reforms, having published relevant research and analysis which it will update. From March 2024, HMRC has also added an optional sector question to its CEST tool to gather further customer insight.
Government Response
Accepted
HM Government
Accepted
4.14 The government agrees with the Committee’s recommendation. Recommendation implemented 4.15 HMRC remains committed to understanding the impacts of the off-payroll working reforms. 4.16 In December 2022, HMRC published research on the short-term effects of the 2021 reform, including insight on the way off-payroll workers are engaged following the reform. This showed that around half of organisations engaging off-payroll workers found the reforms easy to administer. Research also found most organisations used at least one area of HMRC support to understand and apply the rules, with the overwhelming majority finding this support useful. 4.17 This followed similar research published into the 2017 reform. 4.18 Furthermore, HMRC published its own analysis into the impacts of the 2021 reform. The analysis showed the sectors with the highest proportion of workers who were previously working through personal service companies and moved to another organisation’s payroll, were from professional, scientific and technical; information and communication; transport and storage; finance and insurance; and administrative and support services. HMRC will update this analysis when new data becomes available. 4.19 HMRC also gathers customer insight through various sources to understand how customers in different sectors are responding to the reform and whether a sector may have been particularly affected or may face particular challenges in applying the rules. 4.20 Feeding into this, on 27 March 2024, HMRC included an optional question in its Check Employment Status for Tax (CEST) tool asking from which sector the customer operates. This insight will help HMRC better understand customer usage of CEST across different sectors and identify any specific sectoral challenges.