Introduction

The Northern Ireland Tax Committee of Chartered Accountants Ireland is pleased to have the opportunity to comment on the above consultation launched on 5 March 2019. Information about Chartered Accountants Ireland and the Northern Ireland Tax Committee is provided on the previous page.

We wish to briefly comment on the current consultation and would be happy to discuss any aspect of our comments herein and to take part in any further consultations/initiatives in this area. Our response to the 2018 consultation “Off-payroll working in the private sector” is available to view on our website12.

The definition of small business

The definition of ‘small business’ for the purpose of the private sector exemption is a crucial aspect in ensuring that the extension of the rules to the private sector only applies to appropriately sized businesses which are more likely to have the requisite HR, legal and in-house finance resources to correctly apply these complex rules.

The complexity of the matters included in the consultation document and the risk attaching to being in the labour supply chain (which means an employer can be liable for the non-compliance of those further down the chain) means these provisions should rightfully only apply to larger entities.

It is disappointing that the Government chose not to consult on how ‘small business’ should be defined for these purposes. The Companies Act 2006 definition might be one that many businesses and accountancy professionals are familiar with but that does not mean that is suitable for the purpose of establishing the exemption from the off-payroll working rules in the private sector.

We would suggest that the definition of ‘small business’ should match the definition of SME used for the purposes of the exemption contained within the UK’s transfer pricing legislation. This would mean that the rules would not apply to companies with employees of less than 250 where either the turnover test (less than €50 million) or the balance sheet total test (less than €43 million) is also satisfied.

In addition, when a company first commences to trade or breaches the exemption limit (where it was exempt in its previous accounting period), a one year exemption from the rules should also be available, so long as the exemption definition is not breached by say more than five times the relevant exemption thresholds.

A similar exemption mechanism is used, for example, in the UK’s corporation tax instalment payment rules. Under those rules, a company which is defined as ‘large’ in its current accounting period and which was not ‘large’ in its previous accounting period is not required to pay corporation tax instalments in respect of its current accounting period unless ‘augmented profits’ also breach a limit of £10 million (adjusted if required for the number of related 51 percent group companies and short accounting periods). This £10 million limit is more than six times the augmented profits limit of £1.5 million (again, adjusted if required) which is initially used to assess if a company is ‘large’ for the purposes of these rules.

A one year exemption for new companies and established companies breaching the exemption limit will give such businesses time to ensure the correct processes and resources are in place for subsequent accounting periods in order to comply with the rules off-payroll working. This would be welcome in the private sector at a time when the sector is faced with an even greater challenge in the form of Brexit.

In the context of unincorporated businesses (and to answer Question 2), the rules should be uniformly applied so that both the employee and turnover criteria are required to be satisfied in order to be exempt from these rules (option 2 in the consultation document).

Status disagreements

The consultation document states that “it may be necessary for a process to be put in place to allow for determinations to be challenged” and that the most effective approach would be for the engaging business to develop and implement a “client-led” process to resolve disagreements.

There can be no doubt that a process for resolving disagreements between the service provider and the engaging business is a crucial mechanism/facility to ensure the rules are correctly applied particularly where there may be concerns that the engaging business is using blanket status decisions for all service providers it engages.

However the proposals do not go far enough to deal with scenarios where there is a stalemate between the parties. In such scenarios, either of the parties should have the option of referring the status decision to the First Tier Tribunal for resolution. This would be similar to the process for referring disagreements under section 187A(7)(a) of the Capital Allowances Act 2001 where the parties in a commercial property acquisition are unable to agree the value of the fixtures in a second hand property transaction.

A statutory dispute resolution mechanism would also be useful in scenarios where the service provider is concerned that the correct status decision has not been reached and the engaging business is in a stronger negotiating position than they are. This would provide the service provider with a defined route to ensure that the status decision is not forced on them by the engaging business.

In scenarios where the application to the First Tier Tribunal is made by the engaging party, the liability for any income tax and NICs due should remain with them until the First Tier Tribunal issues its decision on the service provider’s status. Where the application is made by the service provider, the responsibility should revert to them until the Tribunal rules. This would help ensure that the referral to Tribunal process is not abused by either party.

Education and support

These proposed changes will impose significant additional obligations on any party in a relevant labour supply chain and it is important that HM Revenue & Customs provides the necessary information and support to those potentially affected. In the coming months, we would like to see a national campaign to raise awareness of these proposals and to signpost where advice and support can be obtained.

The enhancement of the Check Employment Status for Tax (“CEST”) tool is also a critical element of this and we would like to see a firm timetable of when the improvements to CEST will be completed and the revised CEST is up and running. The 6 April 2020 deadline is now just over ten months away and organisations need time to properly understand, assess and prepare for these changes.

Conclusion

We look forward to engaging in further consultation in future on this matter. In the meantime, in the context of the foregoing, as a minimum we believe that the following three key recommendations merit serious consideration:-

1. The exemption from these rules should apply to companies meeting the definition of SME as already used in the UK’s transfer pricing legislation; and
2. HMRC should ensure that a dispute resolution mechanism is available through the First-Tier Tribunal system for scenarios where the client-led process has resulted in stalemate between the parties; and
3. HMRC should provide more detail about the education and awareness-raising activities that it intends to undertake. HMRC should also provide a firm timetable of when updates to the CEST tool will be available.

Freedom of Information

We note the scope of the Freedom of Information Act with regards to this submission. We have no difficulty with this response being published or disclosed in accordance with the access to information regimes. This response will be published on our own website in due course and will be available to all of our members and the general public.

12 https://www.charteredaccountants.ie/docs/default-source/Tax/taxrepresentations/2018-13-chartered-accountants-ireland-response-to-offpayroll-working-in-the-private-sector.pdf?sfvrsn=7