You just can’t trust HMRC when it comes to IR35
Remember back in May 2012 when HMRC heralded their ‘Revised Approach’ to IR35 administration and, in particular, the department’s fresh attitude and new commitment to reducing the length of time it takes to conduct an IR35 enquiry? Forget that as it has proven to be nothing more than a hollow promise.
In the interest of fairness it is necessary to point out that HMRC did appear to be trying to stick to its pledge for about a year but a leopard can’t change its spots and the temptation was too great for the Revenue to revert to its old ways.
Three years ago HMRC told us that if satisfactory evidence can be provided at an early stage of an IR35 enquiry then would promise to close down the review and furthermore to give an assurance to the freelancer that they will not bother them again regarding IR35 for the next 3 years. As HMRC are keen to remind those contemplating using a tax avoidance scheme, do not be fooled by something that sounds too good to be true. For those who expressed scepticism at the time, you have been proven correct and the rest of us have been duped.
In the vast majority of IR35 enquiries I have been involved with over the last few years the contractor hasn’t been able to achieve the hallowed ‘low risk’ score by virtue of the now defunct Business Entity Tests, which is not surprising in itself as this was always likely to be the norm. So it is then necessary to find alternative evidence that will satisfy HMRC sufficiently to allow them to close down the enquiry.
Many contractors will be familiar with a document called the ‘Confirmation of Arrangements’ or ‘Statement of Working Practices’, which has been in widespread use for nearly as long as the IR35 legislation itself. The document is designed as joint witness statement by both contractor and their end client as a testimony to the actual day-to-day working arrangements of the freelancer. It contains just over 20 questions and addresses all the key areas of employment status. The questions themselves are straightforward and either require a simple tick box answer or a sentence. Once completed both the contractor and an end client representative sign and date the form and the freelancer presents it to HMRC, together with authentication of the end user official, as credible evidence to support their claim to being outside of IR35. What better evidence than a statement, in writing and signed by the end client supporting the contractor’s claims, or so you would think.
HMRC, however, are no longer accepting the ‘Confirmation of Arrangements’ as credible evidence, preferring instead to wheel out the same old, tired and now all too predictable mantra, “the ‘Confirmation of Arrangements’ document does not replace the necessary fact finding I [compliance officer] am required to undertake as part of this enquiry.” Translated, this means we (HMRC) want to talk to your end client. It’s become a fait accompli and a return to the bad old days of the way IR35 enquiries were handled before the Revenue made their worthless promises in May 2012.
When the Revenue do communicate with the end client they simply start from scratch and go over the same old ground disregarding the evidence that has already been put in front of them and which has been provided by the end client! This is not only a potential embarrassment for the poor contractor (although circumstances are beyond their control), an inconvenience for both freelancer and end user, but also a contravention of the Taxpayer’s Charter.
Article 9 of the Taxpayer’s Charter states, “We aim to take up as little of your time and money as we can.” Yet HMRC are doing exactly the opposite and being allowed to get away with it. Perhaps the precious IR35 Forum could seek to address this in the very near future because at the moment HMRC are riding roughshod over protocol and double crossing the freelancing community.
You cannot now, or ever have been able to, trust the liars at Inland Revenue. The leopard doesn’t change its spots.
Alot of freelancers already leaving the UK to work abroad and alot more to follow, the UK freelancers community will suffer as a result, as there is nothing in place to protect us even we are outside the IR35!
I guess IR trying to get money out of everyone they can 🙂
It would have been news indeed if HMRC had actually met its promises. However, as MHRC’s modus operandi is almost indistinguishable from a mafia protection racket, it is no surprise they have renaged.
We have never been able to trust anyone on Government neve rmind the HMRC the whole bunch of them are money grabbing so and so’s. In the end we as humans have put too much emphasis on money and it is about time we stop it the bankers of the world rule us all and it is about time it stopped it has go on far enough.. The HMRC and the government are only here to stop us being free just tax us all to the hilt for little in return. If I could go and pay for our Armed forces in person I would do so and only pay the people that actually do a job that merits paying some pompus twit that has never seen action going straight from university and never experiencing the world.
For us all in freelance world we should all form our own political party called ‘Free to freelance’ that would put a stop to all this tax nonsense and create a far payment for local services not some central pompus team of twits in whitehall that could not run a school party let alone a country.
What if the end client lies, or innocently gets things wrong? Maybe he confuses you with another contractor who WAS inside IR35.
Therefore, how can any end-client investigation ever be relied upon….?
Well, I won’t say I told you so, but… you know the rest.
One thing I said about IR35 a long time ago now is that I’d like to see HMRC’s take on these “tests” challenged.
If one actually goes to the trouble of reading the IR35 legislation (It’s more readable than you might think) you will see nothing about working arrangements at all.
When HMRC lost all the early cases on the basis of contract T&Cs they lurched onto another tack – they decided that the working arrangements took precedence over the T&Cs.
Note: THEY decided. All by themselves.
And no-one challenged the notion – not even the good old Oopsie PCG thought to do anything. Meekly accepted by all – just as they meekly accepted the daft “tests” that compare everyone to plumbers because they cannot adequately define their artificial “employment statuses”.
It seems long past time that someone looking after an IR35 case said to HMRC “Please show me where the legislation says that the working arrangements trump the T&Cs. Otherwise please go away.”.
Take as an example, the right of substitution (RoS)…
First, you had to have it. So everyone got it.
Then they asked the client if they would stand a sub being used and if they said no, you were deemed caught. Conveniently ignoring the fact that if the situation really arose then the contractor would terminate the contract with prejudice and the client would be legally in breach of the T&Cs that they signed (and should therefore should be liable for the costs borne by the worker, including any tax levied under IR35).
Then it wasn’t enough to have the RoS, you also had to use it.
What they really missed is that you can get a sub to do a paper round – it’s easy to learn on the day and it has to be done that day. To sub for a professional engaged in a long-term project, with all the relationships they have with people and in-depth knowledge of the work done to date… substitution makes no sense on anything but a long-term basis.
In fact, only as a total replacement for the full term of the work.
This is what contractors face – an endlessly moving target/ Unless those who deal with IR35 cases constantly bring HMRC right back to what the legislation says, refusing to accept that the contract T&Cs can be trumped by any other factor.
If they don’t like it then they can try to get the legislation changed. And when they do that, contractors will also put their case in the consultation phase – and they’re a bit better prepared than they were back at the start of the century.
Well… maybe. They’re more knowledgeable and should do better than last time as long as they never again trust Oopsie IPSE to represent them in their so-called “smoke-filled back rooms of Whitehall”.
Andy – may I suggest that you send your thoughts/findings to Mr Whiting & co at the OTS? They have one or two reasonable conclusions recently (esp. re ER NI being “the elephant in the room”) but they still have an inherent trust re HMRC (outwardly, at any rate!). They could do with some info such as this to trigger a reality check in that area.
Nice piece Andy. It will be interesting to see how the new Government will address IR35 concerns. Whether they will finally ditch it, or continue to bang the tax avoidance drum. As the enforcement figures show, they make no money from it. so why bother!
Dave Chaplin
http://www.ContractorCalculator.co.uk