A leading employment status and tax expert has warned that the Off-Payroll rules proposed by HMRC are both unnecessary and burdensome to contractors.
The rules see compliance requirements and tax liability being shifted along the supply chain.
According to David Kirk of David Kirk and Co, the plans include everyone involved in the chain in the compliance process. This means that there will be an increased risk of adoption of tax avoidance schemes as well as increased administration.
Mr Kirk said: “The more intermediaries there are involved in the supply chain – and hence the compliance process, under HMRC’s proposals – the more points there are at which one might encounter non-compliant operation. That strikes me as an obvious statement, yet HMRC appears to have overlooked this.”
HMRC has produced a consultation that details what it expects of organisations. One of these is a laborious process in which each intermediary in the chain is expected to pass on the employment status of a contractor. Along with this requirement is a tax liability. This means that if HMRC does not receive the tax it expects, then the responsibility will lie with the intermediary who is considered to have not fulfilled their obligations.
Liability moves down the chain as each intermediary fulfils their obligation. IR35 status must also be supplied directly to the contractor. If HMRC cannot collect what it is due from an intermediary because that intermediary has gone bust, then liability moves back to the first intermediary. If payment cannot be collected from the first intermediary, then the client must pay.
This places burdensome administration on all the intermediaries and could result in a less flexible workforce as recruitment processes become more protracted.