The Law Society believes the draft Finance Bill legislation extending IR35 changes to the private sector does not do enough to limit the application of secondary liabilities where parties are not at fault.
In a new submission on the draft Finance Bill legislation extending the off-payroll tax rules to the private sector from April 2020, the Law Society returns to concerns about the imposition of secondary liabilities on parties at the top of the labour supply chain who are not at fault, which the society raised in its first response to HMRC’s consultation in May.
The government’s consultation response in July 2019 confirmed that the proposals were ‘not intended to transfer liabilities in cases of genuine business failure, where deliberate tax avoidance has not occurred’. It stated that the draft legislation would ‘set out conditions under which the liability may be transferred to the top parties in the labour supply chain’, with additional guidance to clarify what would constitute ‘reasonable care’ on the part of clients and agencies.
However, the legislation as published simply states that regulations may be used to authorise recovery of an amount ‘that an officer of Revenue and Customs considers another person should have paid under PAYE regulations in respect of a deemed direct payment’. The Law Society believes granting such a wide discretionary power on individual officers ‘is neither satisfactory nor in accordance with the government’s response’.
The Society believes any discretionary power should only be capable of exercise in specified circumstances and suggests, either:
a person who exercises reasonable care and uses the CEST tool should not be at risk; or
the legislation should set out what factors the officer should consider prior to exercise of the collection power.
Chris Thomas, an employment tax expert at Pinsent Masons, agreed with the Law Society's comments that the secondary liability provisions are too wide as currently drafted.
‘The fact that a business can be liable for the failings of others, despite having complied with its own obligations, reinforces the critical importance of proper due diligence and supply chain oversight by the engager’, Thomas said.
The ATT has also submitted its comments on the legislation to HMRC, with similar concerns about the lack of detail around transfer of liability. The principal issues outlined in the ATT’s submission include:
the main detail around these provisions will be contained in secondary legislation, which has not yet been released in draft;
omission of such important detail from primary legislation and demoted to secondary legislation or even guidance means these provisions receive a lower level of scrutiny;
guidance should be used only to clarify potential points of uncertainty and give practical advice;
all definitions should be contained within the draft legislation, rather than by reference to other legislation, such as Companies Act 2006 in the case of the exclusion for ‘small’ clients;
the draft legislation contains only minimal detail as to what a status determination statement must cover, meaning extensive guidance will be needed; and
introduction of a new term, ‘deemed employer’, in the context of status disagreements could cause confusion.
Michael Steed, co-chair of ATT’s technical steering group, commented: ‘More information and detailed guidance from HMRC is urgently needed if the roll out of these new rules will succeed’. See bit.ly/2mvH6Xe.
The Law Society believes the draft Finance Bill legislation extending IR35 changes to the private sector does not do enough to limit the application of secondary liabilities where parties are not at fault.
In a new submission on the draft Finance Bill legislation extending the off-payroll tax rules to the private sector from April 2020, the Law Society returns to concerns about the imposition of secondary liabilities on parties at the top of the labour supply chain who are not at fault, which the society raised in its first response to HMRC’s consultation in May.
The government’s consultation response in July 2019 confirmed that the proposals were ‘not intended to transfer liabilities in cases of genuine business failure, where deliberate tax avoidance has not occurred’. It stated that the draft legislation would ‘set out conditions under which the liability may be transferred to the top parties in the labour supply chain’, with additional guidance to clarify what would constitute ‘reasonable care’ on the part of clients and agencies.
However, the legislation as published simply states that regulations may be used to authorise recovery of an amount ‘that an officer of Revenue and Customs considers another person should have paid under PAYE regulations in respect of a deemed direct payment’. The Law Society believes granting such a wide discretionary power on individual officers ‘is neither satisfactory nor in accordance with the government’s response’.
The Society believes any discretionary power should only be capable of exercise in specified circumstances and suggests, either:
a person who exercises reasonable care and uses the CEST tool should not be at risk; or
the legislation should set out what factors the officer should consider prior to exercise of the collection power.
Chris Thomas, an employment tax expert at Pinsent Masons, agreed with the Law Society's comments that the secondary liability provisions are too wide as currently drafted.
‘The fact that a business can be liable for the failings of others, despite having complied with its own obligations, reinforces the critical importance of proper due diligence and supply chain oversight by the engager’, Thomas said.
The ATT has also submitted its comments on the legislation to HMRC, with similar concerns about the lack of detail around transfer of liability. The principal issues outlined in the ATT’s submission include:
the main detail around these provisions will be contained in secondary legislation, which has not yet been released in draft;
omission of such important detail from primary legislation and demoted to secondary legislation or even guidance means these provisions receive a lower level of scrutiny;
guidance should be used only to clarify potential points of uncertainty and give practical advice;
all definitions should be contained within the draft legislation, rather than by reference to other legislation, such as Companies Act 2006 in the case of the exclusion for ‘small’ clients;
the draft legislation contains only minimal detail as to what a status determination statement must cover, meaning extensive guidance will be needed; and
introduction of a new term, ‘deemed employer’, in the context of status disagreements could cause confusion.
Michael Steed, co-chair of ATT’s technical steering group, commented: ‘More information and detailed guidance from HMRC is urgently needed if the roll out of these new rules will succeed’. See bit.ly/2mvH6Xe.
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