Payroll insight
What procedures have been implemented to advise individuals and the engaging departments of the procedures and processes to be followed when an engagement/ contract is put in place (e.g. new contracts for service provision)? Ian Hodson: One of the greatest challenges has been around the two key relationships that we need to maintain but which do not necessarily sit well together as part of a combined engagement. Firstly, we are still dealing with a procurement process and engaging a new supplier albeit that they are now a personal service company. We would still wish to maintain this relationship through raising supplier orders on our procurement system and the receipt booking process through to what would normally be purchase ledger. However, secondly the expertise in calculation tax and National Insurance and remitting real time information absolutely sits with the payroll department so they are better positioned to make the payment and report through to HMRC. This has meant a real difficulty in either trying to bring the two processes together or having the process owned as either procurement or payroll accepting the fact that it will create difficulties for one area or the other. In our communications we have made it clear that this is still a procurement led process to engage a supplier and it is just the payment method that will change. Procurement will continue to oversee all provider relationships with a separate flag on the finance supplier listing if the IR35 arrangement applies to each engagement. The assessment of each engagement
the ESS tool but this needs to be balanced by reports that talk of its accuracy and efficiency. However, the one comment that is consistent is that this is a tool designed for the individual rather than the employer or the individual. Jas Jhooty: Since the launch of HMRC’s employment status service we have tested 558 real life contracts by putting them through HMRC’s ESS and then assessing them through our own independent IR35 testing service. Our main findings are that: ● the ESS fails to determine the IR35 status of contractors in 14% of clear-cut cases ● 29% are receiving passes from the ESS, whom should fail IR35 ● incorrect assessments run the risk of enabling unintended tax avoidance. Our conclusion is that HMRC’s ESS simply cannot be trusted. Bizarrely, many contractors who either clearly pass or clearly fail IR35 are receiving an ‘unknown’ decision from the ESS. If the ESS can’t decipher the more straightforward cases, it reinforces our opinion that there is a gaping hole in its programming logic. Even more worrying, almost a third of contractors are being passed by the ESS when they should clearly fail, meaning the taxman may be negligently facilitating tax avoidance. Having initially claimed it would be bound by the outcome determined by the ESS, recent reporting has indicated that IT contractors working within HMRC who their tool says should pass IR35 are being told they are to be treated as inside IR35. Considering the above evidence, it should come as no surprise that we do not advocate that anybody use HMRC’s flawed ESS. David Paul: Our experience is that there is a mix of those using ESS directly and those that use other methods, including outsourcing to other parties. It is more common for details of complex or borderline cases to be run through ESS in order to verify the thought process and support disputes with contractors. The public sector bodies are more risk averse than many contractors as they don’t want the risk of contractors’ tax being sought from them. A number of our clients are using ESS and are retaining for their records full details of the outcome. They are also retaining supporting documentation relating to each response, in the event of a
Jas Jhooty, director, emTax Ltd
subsequent HMRC challenge. The ESS is, though, producing some unexpected results, and its implementation appears to have been rushed. While it is helpful that the tool provides an output that users (and HMRC) may rely on as long as correct information is input in the first place, it is unhelpful if the output does not reflect case law and is potentially incorrect. There are numerous instances of contractors disputing the outcome. Of some concern is the fact that the ESS is likely to have ‘behind the scenes’ tweaks to its decision making process over time. There is therefore uncertainty as to whether a specific fact pattern will produce the same outcome following any such updates so there could be uncertainties about ongoing reliance on the decision. Neil Tonks: We’ve made our clients aware of the status service, but it’s up to them to use it where appropriate. We have received a number of queries about how to meet the tax, NICs and RTI (real time information) responsibilities on our system but not about deciding status, which suggests that they’ve decided on a policy regarding this. Karen Beckett: We are using the HMRC ESS tool. Unfortunately, it doesn’t provide the full robustness that was anticipated as there is a flexibility to be able to go back and change responses which in turn changes the final outcome of the assessment.
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| Professional in Payroll, Pensions and Reward |
Issue 31 | June 2017
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