If HMRC’s introduction of the IR35 legislation back in 2000 wasn’t enough to fracture the Government’s relationship with contractors, the way in which these complex rules have since been enforced seems to have done just that.
This is reflected in the 95% of independent workers who recently stated to one of the leading IR35 experts, Qdos Contractor, that HMRC’s handling of IR35 is aggressive, compared to just 5% who see it as fair. Certainly, The Treasury’s bullish approach to stamping out what they believe to be widespread tax avoidance has not won them many fans. And for that matter, nor has HMRC’s record of one win, one split decision and seven losses in the nine most recent IR35 cases. Surely this is proof – if ever it was needed – that HMRC’s game plan needs rethinking.
But contractors aren’t the only ones who believe HMRC’s insensitive approach to IR35 compliance is altogether wrong. Another contractor publication has also argued that HMRC is ‘manipulating’ the rules which – following public sector reform – they now approach from a ‘guilty until proven innocent’ perspective.
The Government’s IR35 failings were again highlighted last month, when it was announced a contractor won his appeal against HMRC, after they decided he should have been working inside the rules and therefore owed £26,000 in taxes.
Of course, an IR35 case on its own is not too odd of an occurrence, but the fact it was the second time HMRC had decided to investigate this contractor does stand out as slightly strange.
Was the contractor, who was successfully represented by Qdos Contractor both times, targeted by HMRC? Until the Government offers evidence that it enforces the rules in a fair and structured way, you could argue that this contractor wasn’t simply unlucky.
Incidentally, and to make matters worse for HMRC, to many people’s knowledge, this is the first time a contractor has twice been forced to go through an IR35 case, and twice won.
Qdos Contractor data suggests nearly one in three (32%) of contractors would consider going employed as a result of the Government’s plans to crack down further on tax. Out of this near third of contractors considering employment, the majority (64%) would make the move if and when private sector IR35 changes are enforced.
With IR35 central to most contractors future as an independent worker, it’s clear that HMRC must tread carefully. The Treasury might not care much about winning over these workers, but that doesn’t mean they should pursue them aggressively, as suggested.
After all, surely HMRC, as a Government department, has a responsibility to carry out IR35 checks from the viewpoint that the contractor is innocent until proven otherwise, which is one of the fundamental principles of UK law.