The minutes of the latest IR35 Forum meeting indicate that HMRC are rather pleased with themselves. During the meeting HMRC provided an update on reform of the IR35 rules within the public sector and stated that;
“Data shows that compliance has improved as a result of the reform… HMRC estimates an additional 410m of income tax and NICs have been remitted since the public-sector reform was introduced.”
The same figures were parroted by Mel Stride, Financial Secretary to the Treasury, in response to a question asked by Peter Dowd, Shadow Chief Secretary to the Treasury, who asked how much revenue has been remitted since the public sector IR35 reform was implemented.
HMRC did acknowledge concerns regarding public sector organisations, having adopted blanket IR35 rulings, and played down any such concerns by stating that:
“There will be occasions where workers are hired to carry out identical roles, with the same terms and conditions and where the same determination is correct. This is legitimate and does not amount to a blanket ruling.”
However, the meeting notes suggested that this was not necessarily accepted by all forum members and rightly so, since HMRC’s stance opposes guidance in their own Employment Status Manual (ESM0502) regarding fact-finding techniques:
“Almost all cases where status is in doubt will need some investigation. The extent of that investigation will depend on the particular facts in each case…it is firstly necessary to establish the terms and conditions of the engagement. This will normally be established from the contract between the worker and the engager, which may be written, oral, implied or a combination of all three.
Having established the terms and conditions it is necessary to consider any surrounding facts that may be relevant.
These facts then need to be considered in light of the different factors that the Courts have identified as being relevant in determining whether a particular contract is a contract of service (employment) or a contract for services (self-employment).”
Despite IR35 reform in the public sector, HMRC have always maintained that the IR35 rules themselves have not changed, but it seems now that HMRC are happy to accept blanket IR35 decisions which completely contradicts HMRC’s own guidance here, which is to establish the full facts of each case.
Additionally, the forum minutes state that; “CEST has been tested using the core case law that people would expect…” As many IR35 experts will profess, this is not the case and is why HMRC were questioned on their reasoning behind omitting Mutuality of Obligation from the CEST Tool.
Although HMRC’s explanation has since been published, this has not necessarily been accepted as a valid explanation and is certainly not one which is shared by the Tax Tribunals, as recent rulings have highlighted.
In response to a further question posed by Peter Dowd to Mel Stride, which asked what special arrangements or exemptions HMRC had entered into to enable public sector bodies to meet their requirements under the public sector rules, Mel Stride’s response was that;
“HMRC has not agreed any exceptions or special arrangements with Public sector bodies.”
However, it recently came to light that HMRC were considering alternative options with regard to the BBC, given the fact that the CEST tool was found to be unfit for purpose for those operating in the broadcasting industry, demonstrated in a Select Committee Hearing held in March this year regarding BBC pay, where BBC presenters gave evidence concerning use of the tool.
HMRC’s claims that £410m of additional tax and NICs have been remitted since reform in the public sector was introduced, gives them the impetus to introduce further IR35 reform in the private sector as soon as they can. At some point HMRC may be forced to take off their rose-tinted spectacles, but what further disaster will have to unravel before HMRC remove them?
Qdos Contractor are a leading IR35 authority having defended contractors in over 1,500 cases since 2000, reviewing over 600 contracts each month and insuring contractors with their pioneering IR35 insurance: Tax Liability Cover.