ATT Warn of Need to Delay Controversial Contractor Tax Rule

Steve Maggs

by Steve Maggs, Tax Partner

For more information on how RRL can help with the new rules relating to personal service companies, please contact Tax Partner Steve Maggs, on 01872 276116 / 01736 339322 or steve.maggs@rrlcornwall.co.uk.

The ATT (Association of Tax Technicians) is warning that with the Budget delayed, the changes to the way businesses employ the services of contractors, planned for April 2020, should now also be delayed to give businesses adequate time to prepare.

The change is planned for April 2020 but the ATT is now calling for it to be delayed by 12 months.

They are warning that the longer the delay to the Budget and Finance Bill, the longer businesses will have to wait for the final legislation which will introduce these controversial changes to the off-payroll rules – leaving businesses with a greatly reduced and unrealistically short time frame in which to adapt to the changes.

If the rules are implemented as proposed in the draft legislation then, from 6 April 2020, responsibility for determining whether an engagement falls within the off-payroll rules will move from the worker’s personal service company (PSC) to the client (the business which requires the worker’s services). The party which pays the PSC (which may be the client, or an agency depending on the commercial arrangements) will then be required to operate PAYE and NICs as appropriate.

The lack of final legislation and detailed guidance combined with the current absence of an updated version of HMRC’s much-maligned Check Employment Status for Tax (CEST) mean that there is a real lack of clarity as to how the off-payroll rules will operate in practice in the private sector. The ATT says this makes it near impossible for businesses to make adequate preparations. Under the current timetable there remains only a little over five months for businesses to get ready and this at a time when many will be preparing for or responding to the implications of Brexit, says the ATT.

Commenting on the issue, Jon Stride, Co-chair of ATT’s Technical Steering Group, said:

“We strongly urge the Government to delay this major shift in how businesses engage with contractors until 2021.

“Many important practical issues, such as when liability can be transferred within an engagement supply chain and exactly what information will need to be shared by clients, are not addressed in the draft legislation at all. We have also seen only limited evidence of any HMRC education and information campaigns so far.

“Without a delay, we anticipate low levels of compliance and increased numbers of errors, and greater demand on HMRC telephone lines and HMRC staff for support at a time when their resources are already strained. We may also see risk-averse positions being taken by businesses, for example, a blanket decision to put all workers onto the payroll regardless of the nature of the arrangements, to the detriment of workers.

“The Government has previously stated that they were committed to learning from the rushed introduction of these rules to the public sector in 2017.  We believe that introducing the off-payroll rules to the private sector in April 2020, when final legislation and detailed guidance are not yet available, risks repeating the errors made in the public sector, rather than learning from them.”

 

This publication has been prepared by RRL LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.