HMRC has been told that if the private sector is to have a good chance of adopting IR35 reform by April 2020, it is going to have to meet strict new deadlines. Some feel that ultimately October 2019 will have to be the final deadline to launch necessary improvements to the HMRC Check Employment Status for Tax (CEST) Tool. This is to give individuals and business much needed time to review both new and existing contracts. October 2019 allows for 6 months prior to the reforms for parties to get their houses in order using the modified tool. This will mean required changes can actually start to be implemented before final IR35 decisions are made.
The Chartered Institute of Taxation (CIOT) explained that CEST will need to be “better able to address a wider breath of scenarios”. This was in reply to the consultation of the off-payroll Working reforms in the Private Sector. In responses to the HMRC consultation, many have conveyed their concerns regarding the tool. The majority feel it needs a thorough overhaul, or at very least considerable additional investment to make it fit for use.
The CIOT’s submission specifies October 2019 as its recommended deadline for these CEST updates. The explanation behind this relates to the overhaul of HMRC’s Tool required to make it capable of dealing with the complexities of the private sector. However it is actually an extension to April 2021, for the IR35 reforms, which is seemingly more popular in consultation responses. The consultation asked contractors, lawyers and accountants for their opinions on the matter. Many stated that the private sector IR35 reform should simply not go live before April 2021. The main rationale for this is that 2020 would be too soon and a satisfactory lead time would be required to minimise disruptions following the reforms. There will be complex operational and system matters that businesses will need to address, requiring long planning and development periods. With only less than a year to April 2020, many feel businesses may struggle to put robust processes in place in time.
The overriding feeling is that if the reforms are going to be introduced properly, then HMRC will have to get their CEST tool up to standard. Draft legislation will be published most likely in July for further discussion later in the year. Following that, it is likely that the legislation will come into power in April 2020. Hopefully consultation responses are taken into consideration and this is reflected in more realistic time schedules. If not then the current forecasted situation has the potential to cause chaos for contractors in the private sector.
Overall there is a huge amount of uncertainty and disruption incoming for contractors using Personal Service Companies. The case for using them is slowly but surely being eroded away for many individuals by these IR35 reforms. It is vital to realise that all of this chaos will be entirely avoided by using an Umbrella Company to process contractor payroll. The umbrella employs the contractor and processes their payroll via PAYE with full tax and NI deductions made. The case for switching to umbrella payroll is certainly going to be amplified in the coming months in the run up to the reforms regardless of what happens to CEST and potential timeframes.
Source: Contractor UK, Update CEST by October, delay IR35 reform until 2010, HMRC told, June 2019,