Thank you for contacting me about off-payroll working.
The efforts to amend the Finance Bill were defeated: it is important to note that colleagues at the Treasury assured me before the vote that they understand that the reform is a significant change and that they recognise the concerns of constituents, workers, businesspeople and MPs about implementing it at such an uncertain time for individuals and businesses. A number of significant improvements and changes have been made to the policy itself, a number of which I set out below. I will be following this issue carefully and very much want to hear from constituents about any issues that arise from the policy's implementation. I will always endeavour to raise such issues with Ministers.
The fair tax treatment of individuals working across the labour market is a well-established principle of the UK tax system. The off-payroll working rules are designed to ensure that where two people are working in the same way, but one is directly employed and one is working through a company, broadly the same amount of tax is paid. Without these rules there is nothing to prevent employers moving employees off-payroll simply to avoid paying employment taxes.
However, the cost of non-compliance with these rules is set to reach £1.3 billion per year by 2023/24 if not addressed. This is an unsustainable cost that is borne by taxpayers up and down the country. This reform will improve compliance by moving responsibility for determining whether the rules apply from a contractor’s limited company to their client. This is not a new tax but a transfer of responsibilities within the existing rules.
This reform has been in place in the public sector since 2017. Unless this reform is also introduced in the private sector, a disparity of treatment will continue, potentially leading to recruitment and retention difficulties in the public sector and unfairness for contractors working for public sector clients.
Among the changes to the implementation of the policy are the following:
Delay due to COVID-19
It was recently announced that the reform would be delayed by a year, from April 2020 until April 2021, in response to COVID-19.
Status Disagreement Process
At Budget 2018, it was announced that the reform would be extended to the private and voluntary sectors. In March 2019 consultation was undertaken on the details of the reform, which led to the introduction of a statutory requirement for clients to provide a status disagreement process, which contractors can use to challenge a status determination if they believe it to be wrong. This was an important point raised by MPs on behalf of contractors in constituencies across the country.
Check Employment Status for Tax (CEST)
In November 2019, HMRC launched an enhanced version of their Check Employment Status for Tax (CEST) tool. The changes were designed to make the tool clearer, reduce user error and consider more detailed information, helping to ensure businesses get status determinations right.
In January 2020 a review was conducted of how the reform would be implemented which published its conclusions on 27 February. HMRC announced that penalties would only apply in the first year of the reform in cases of deliberate non-compliance, reassuring businesses that we want to support them to implement these changes. HMRC also reconfirmed their commitment to contractors that information resulting from the reform will not be used to open enquiries into previous tax years, unless there is reason to suspect fraud or criminal behaviour. This is an issue that I understood was causing significant anxiety for individuals.
Commission of External Research
The Government has committed to monitoring the impacts of the reform going forwards and has announced that external research will be commissioned into both the long term impacts of the reform in the public sector, and 6 months after implementation, into the impacts of the reform in the private and voluntary sectors.
Thank you again for taking the time to contact me.
Craig Whittaker MP