The ICAEW has expressed significant concerns about the practical difficulties encountered by those involved with the public sector off-payrolling regime, beginning with the rollout of the check employment status tool (CEST), which it believes as currently designed ‘does not command public confidence and needs further work’.

In detailing the issues surrounding CEST, the ICAEW notes that it does not cover all of the necessary scenarios because it excludes mutuality of obligation (MOO), a key factor in determining employment status.

ICAEW argues that ‘CEST needs to cover the specific master and servant MOO test prescribed by the courts, namely whether there is an obligation on the worker to work and an obligation on the other party to pay the worker and to continue to make work available during the time of the contract’.

In order for CEST to be valid, ‘there needs to be ‘general’ MOO (ie, acceptance of the terms of the contract which places obligations on both parties) for there to be a contract at all, and ‘relevant’ MOO for there to be a contract of employment’, using terminology employed in a recent HMRC case. While conceding that 'this is not something than an on-line tool can easily do', the ICAEW nevertheless argues that HMRC has the responsibility of 'recalibrating it a bit'.

It also found that CEST cannot reach a status decision in 15% of cases, which it feels is too high for a tool 'designed to bring certainty...to workers'. Similarly, the ICAEW argues that 'it is not possible currently to identify ‘deemed employees’ from ‘true employees’ on the payroll for tax purposes’, and calls on HMRC to provide payroll software specifications to prevent individuals from being reported incorrectly.

It also states that parties who disagree with an employment status decision, whether employers or contractors, 'have little chance to have such decisions overturned quickly'. It argues that HMRC has a responsibility to 'give far more publicity to the existing right of appeal procedure with a view to addressing a long-term solution'.

As well as arguing that the basic rate (BR) tax code has presented a long-standing problem for those with secondary employment, often resulting in the wrong amount of tax being collected - and arguing that HMRC should change to the previously-recommended 0T tax mode - ICAEW also criticises HMRC's track record on IR35 in the context of tax tribunals.

It notes that HMRC has only won 11 cases out of 25 since the introduction of IR35 which, it says, 'highlights that there are fundamental problems with policing this legislation which need to be addressed'.

While it is too early to assess the effectiveness of the public sector off-payrolling changes, due to there have not yet been a full-year cycle, ICAEW believes that it is a 'work in progress' and stresses the importance that 'the system supporting this change is reliable and that those using it can do so with confidence'. It strongly recommends that significant changes are made before the regime is applied to the private sector.

The consultation will close on 10 August 2018.

Open consultation: Off-payroll working in the private sector is here

Report by James Bunney