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HMRC cannot be trusted to solve IR35

The recent press regarding IR35 and specifically IR35 reform in the private sector, has been somewhat disheartening. It is apparent that HMRC cannot be trusted to solve the issues we’re faced with.

The Select Committee Hearing regarding the BBC’s use of freelancers held on 20th March ridiculed its CEST tool and it has recently come to light that HMRC have no evidence upon which to prove that the CEST tool provides an accurate opinion.

The tool has also been criticised for failing to cover Mutuality of Obligations, a key status factor as set out in case law. In many of the latest Tribunal decisions, the CEST tool has been indirectly criticised, indicating that the Tribunal don’t attribute much importance to it either.

It has been reported previously that the tool was developed by IT contractors who, when IR35 reform in the public sector was introduced, were told they had to operate inside of IR35 and promptly ceased working for HMRC.

The tool is still in BETA a year on. This begs the question, if HMRC don’t know how to solve the issues then how can contractors be expected to determine their status? For some certainty regarding IR35, HMRC may be the wrong place to look and we would advise any contractor to be wary of sending their contract to HMRC.

Start as you mean to go on

Many contractors make the mistake of starting a contract and then trying to address their IR35 status later. Instead, having a discussion with the agency and if possible the end client, can ensure that you start off on the right footing from the outset, and that the correct intention is set in place at the start of the engagement.  If the client understands and recognises your IR35 status, in the event of an IR35 enquiry, half the battle will already be won.

Although the BBC’s treatment of its freelancers is hugely flawed, because it is such a recognisable organisation, it has highlighted to a much wider audience the failings of HMRC. Perhaps the next bout of IR35 reform will be more carefully thought through. One can only hope that this will be the case, but the controversy over the CEST tool highlighted HMRC’s poor approach to IR35 and they will certainly need to do something to restore their credibility.

By Contractor Weekly

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2 thoughts on “HMRC cannot be trusted to solve IR35”

  1. bolshiebastard

    All successive Governments needed to have done was make dividends liable for NICs. This was regularly mooted when IR35 first came in back in 2001.

    IR35 needs abolishing since it is not working but goodness knows what Government will put in its place.

    • The Q

      On the dividends comments …

      1. A sliding scale of dividend ratios (for £X of dividend you
      must pay £Y in salary) was one equitable proposal
      suggested for PSC / small companies.

      2. A similar counter-balance was determining how much
      capital you have put into your ltd company.

      #1 would halt the contractor who tries to take nearly
      all his earnings as dividends, as they would fail the
      ratio check.

      #2 (as suggested by some accountants) would allow
      those whose capital had been used in order to get the company into an operating mode (equipment, extra
      workers etc) of good profitability, to literally reap the
      dividends of their investment (the ratio check is
      waived for them) .

      Hardly any contractors do #2 (the closest I come is to
      always have a perpetual minimum residual 10K profit
      held in the company) . so the ratio check would be
      applied.

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