Investigation into the implementation of IR35 tax reforms

There are opportunities for HMRC to continue to improve the customer experience and compliance. It should: a) Further develop the CEST tool and accompanying guidance to make it as easy as possible to use accurately. This includes: • taking a structured approach to analysing sources of mistakes and user feedback to improve the questions and limit the scope for misinterpretation; • embedding or linking to relevant parts of the detailed guidance within each question to make it easier for users to understand the questions and identify the relevant guidance; and • ensuring there is a clear and efficient process for users to follow when CEST cannot provide a determination, including from HMRC’s own helpline.

c) Identify and set out case examples of good implementation to promote compliance by helping organisations get determinations and tax deductions right first time. To do this, HMRC should work with stakeholders such as the Tax Centre of Excellence, the Government Internal Audit Agency, and tax and payroll experts. For example, public bodies and other stakeholders told us they would welcome more clarity and case examples on: • good practice in training staff to understand and administer the rules; • ways to link together different parts of the business to ensure the right information is used when determining employment status; and • ways to work with others in the supply chain to ensure tax deductions are calculated correctly when workers are deemed to be employed.

d) Update its estimate of compliance costs to hiring organisations based on actual experience, to help all parties understand the scale of activity needed and how HMRC can best support implementation. Emerging good practice and HMRC’s compliance work suggest that significant investment may be needed – for example, in dedicated staff and independent review structures. HMRC needs to send a clear signal to hiring organisations about the level of resources and administration needed to be compliant. It should reassess and communicate the resources and processes required in practice to reliably ensure compliance on an ongoing basis rather than minimum implementation costs.

e) Develop a more effective and efficient system to ensure HMRC accurately collects the total taxes due from workers and hiring organisations when errors have been made. This covers situations both where HMRC has found an organisation to be non-compliant and where workers have appealed an incorrect determination. The current arrangements for cases of non-compliance involve HMRC collecting the estimated full amount owed from deemed employers and leaving it to workers to reclaim taxes already paid. HMRC should: • consider how it can efficiently and effectively ensure that it collects the correct taxes due in total; and • explore how it can better estimate the amount due from client bodies for workers incorrectly assessed as self-employed. HMRC should test its assumption that all workers will have used their tax-free personal allowance on income earned elsewhere. It should consider how it can collect better data on the contractors affected and whether it would be appropriate to use whole population data to make estimates where there is a large number of workers.

f) Build on its improved collaboration with stakeholders to enable constructive discussions and pre-empt challenges in the public and private sectors. This could involve further working with: • representatives of specific sectors to develop sector- or role-specific guidance and examples based on an analysis of where this would be most helpful; and • private sector stakeholders on the risks and challenges they face to understand what impacts the reforms may have on complex supply chains, particularly in essential or high-risk areas.