The HMRC is under pressure to rethink its plans to extend IR35 tax reforms to the private sector and scrap its "unfit" assessment tool.

Earlier this year, the HMRC published an IR35 consultation covering off-payroll working in the private sector which aims to address compliance with off-payroll working rules in the private sector. The consultation closed last Friday. Last April, HMRC implemented reforms of off-payroll working rules for the public sector.

According to The Register, HMRC estimated that 10% of the Personal Service Companies that should apply the legislation actually do so. The cost of non-compliance is expected to rise from £700 million in 2017/18 to £1.2 billion in 2022/23.

In response to the conclusion of the consultation, IR35 specialist Qdos Contractor has suggested ways compliance could be improved and have also detailed ways in which they think the public sector reform is flawed (particularly HMRC’s approach to the reform).

“To extend reform when the dust clearly hasn’t settled on public sector changes would be short-sighted,” Qdos Contractor CEO Seb Maley told People Management. “The government must prioritise sorting the chaos caused by public sector reform before moving onto the private sector. Should the government press on with changes regardless, a 2019 rollout would be premature.”

“In addition to a critical assessment of public sector reform, we encouraged HMRC to at the very least, delay reform until such time as employment rights and tax are aligned, affording contractors the protection they should be entitled to,” Qdos stated in its written response.

The Freelancer & Contractor Services Association (FCSA) also commented on the conclusion of the consultation and proposed “a new innovative solution designed to increase IR35 compliance in a fair and transparent way”.

Julia Kermode, FCSA’s chief executive said: “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 HMRCreal-time data for targeted enforcement activity.  And best of all, our proposal will not be overly burdensome as 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.”

FCSA said its proposal will serve to tighten up compliance by requiring end-hirers to secure their labour supply chains, and requiring the PSC, feepayer and intermediaries to share information up the supply chain. Information would be reported quarterly to HMRC, and the resulting intelligence would enable HMRC to undertake targeted, risk-based compliance and enforcement activity.

Dave Chaplin, CEO and founder of ContractorCalculator, commented on the CEST (Check for Employment Status for Tax) tool, “CEST oversimplifies a complex area of employment case law, omits key areas of law, does not take into account personal circumstances and has been shown to give the wrong answers in almost half of cases. It is for these, and several other reasons, that CEST is simply incapable of providing a consistently correct assessment and therefore fails to meet the required standard for reasonable care.”

The Association of Independent Professionals and the Self-Employed (IPSE), also commented, telling the Register, “Taxing more self-employed people as if they were employees – without giving them any of the employment benefits – would only add to [tax confusion] and further complicate this tangled issue. Therefore, with Brexit hanging over the country, IPSE’s response to the government’s consultation was clear: don’t do it, and definitely don’t do it any time soon.”