The government’s consultation on IR35 reforms in the private sector closed last week. Now, organisations like the Freelancer and Contractor Services Association (FCSA) are sharing alternative solutions to reform.

The FCSA proposes that personal service companies (PSCs) retain responsibility for their IR35 status, with an obligation to exercise reasonable care.

Quarterly information sharing

This would put the onus on end clients to secure their labour supply chains, and require the PSC, fee payer and intermediaries to share information up the supply chain. Information would be reported quarterly to HMRC. The resulting intelligence would enable HMRC to undertake more targeted compliance and enforcement activity.

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The suggestion is similar to one put forward by the Chartered Institute of Taxation earlier this week. This focused on the merits of better reporting.

“Our proposal is a solution that works on all levels: it redresses the current balance by giving both the end client and PSC some skin in the game; it drives compliance by making it in the commercial interests of intermediaries and the whole supply chain; and it gives HMRC real-time data for targeted enforcement activity,” FCSA chief executive Julia Kermode said. “And best of all, our proposal will not be overly burdensome. It is now common practice for compliant businesses in the labour supply chain to carry out supplier audits and maintain preferred supplier lists based on compliance standards.”

Incorrect assumptions

FCSA’s response to the consultation contests some figures used by HMRC to justify reform. It said:

  • HMRC is incorrect in its assumption that non-compliance in the private sector in 2022/23 will cost £1.2billion.
  • HMRC is incorrect in its assumption that one third of people working through PSCs in the private sector are akin to employees.
  • HMRC’s figure of 58,000 extra individuals paying income tax per month includes sole-traders.

According to Julia Kermode, these figures are based on overstated forecasts and include workers which shouldn’t be considered. “We disagree with HMRC’s assumption that one third of people working through a company are working like employees,” she said. “But perhaps most concerning of all is our evidence that HMRC’s figure of 58,000 extra individuals paying income tax per month includes sole-traders. This is very serious because, by definition, sole traders are outside the scope of IR35 and so should not be on payroll, nor taxed as employees.”

Finding a realistic solution

“All in all, the 2017 reforms have been a shambles. Government cannot realistically countenance any roll out to the private sector,” Kermode added. “We are certain that our approach is more proportionate, fair and realistic. We will be lobbying for the government to listen to our well informed views.”

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