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Fact or Fiction – Are HMRC making it up as they go along?

Following the release of the Matthew Taylor Report on ’Modern Working Practices’ and the subsequent ‘Employment Status Consultation’ both released in February this year, a consultation document on reforming IR35 within the private sector was finally released on 18th May 2018.

However, what many may not have expected, was HMRC’s complete disregard and ignorance of the impact of public sector IR35 reform which was implemented in April 2017.

The consultation document begins by stating that:

“There is evidence that this legislation is not working effectively, and non-compliance is widespread. HMRC estimates that only 10% of PSCs that should apply the legislation actually do so.”

It doesn’t however tell us where to find such evidence which supports this statement.

Additionally, the document states that “the cost of non-compliance in the private sector is high and growing – projected to increase from £700 million in 2017/18 to 1.2 billion in 2022/23” but the document doesn’t indicate how such figures have been projected.

HMRC considers that:

”The option to work through an intermediary, including a PSC, helps support this labour market flexibility. The public sector reform did not stop people working through these structures.”

Perhaps HMRC should explain that to the many contractors working for the NHS whom cannot work outside of IR35, not because of a CEST tool determination, but because many NHS Trusts will only allow contractors to work for them if they operate inside of IR35, regardless of their actual status.

In evaluating the effectiveness of the public sector reform, HMRC estimates that an additional £410 million of income tax and NICs has been remitted. What they fail to recognise is that some of this income will not be through ‘compliance’ particularly with those organisations opting to take a blanket approach to the legislation.  No doubt HMRC deem the reform as a success as long as it sees the income rise, but let’s not forget that they are a public sector body with the aim of ensuring people pay the right amount of tax, not necessarily more tax.

Due to the number of concerns over reform of IR35 in the public sector (which although is taken very seriously, is mostly considered to be ‘anecdotal’) the Government commissioned independent research into the experiences of public sector bodies having to implement the reform.

HMRC claim that they have spent considerable time with many public sector organisations helping them to understand the rules and to ensure compliance, but let us consider the BBC and where such guidance has left them.

Many TV and radio presenters were persuaded into setting up limited companies even though they didn’t want to, and one presenter was reported as having attempted to commit suicide due to the pressure exerted over them with regard to their employment status.

As for HMRC’s CEST tool, we have an online system which does not accurately follow case law, and although it may provide an opinion in 85% of cases, there is no evidence to suggest that the correct decision is provided, confirmed following a recent Freedom of Information Request.

HMRC are keen to increase revenue by doing less work and I can certainly agree that IR35 enquiries are unnecessarily protracted affairs. However, very often in my experience this is due to the HMRC Inspector dealing with the case, and not necessarily due to any difficulty in obtaining information.

Qdos Contractor, IR35 advisory and contractor insurance provider, recently defended a client at First-tier Tax Tribunal, where the Judge upheld the appeal, recognising that the contractor (Jensal Software Limited) was under no control of its end client, who interestingly enough was a public organisation: the DWP.

The consultation document refers to ‘an entire industry advising companies on how to draft contracts which create the impression that a job falls outside of the off-payroll rules,” and appears to criticise those businesses who might be helping contractors grasp the legislation, because in this the BBC is a clear example of HMRC’s guidance having not worked, and in the case of Jensal Software we were pleased to be able to successfully defend a contractor who was correctly operating outside of IR35.

In a parliamentary debate in the House of Commons held yesterday on ‘NHS Outsourcing and Privatisation’, Jon Ashworth – Shadow Secretary of Health, stated that;

“Underfunding and lack of capacity have driven more and more NHS purchasing from the Private Sector. We have seen beds lost in NHS hospitals, which are then increasingly forced to use the Private Sector. Spending on elective treatments outsourced to the Private Sector rose from £241 million in 2015-16 to £381 million in 2016-17.”

The NHS is in crisis, hence the need for such parliamentary debate, and it would be somewhat ironic if HMRC become the straw that eventually breaks the camel’s back, particularly given that the income derived from compliance is to be ploughed back into public services.

It seems clear from the consultation document that HMRC will forge ahead with reform whatever the cost and no doubt the BBC and NHS will not be the only casualties.

By Contractor Weekly


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12 thoughts on “Fact or Fiction – Are HMRC making it up as they go along?”

  1. Ying Tong

    Employers need look no further than the recent GDPR implementation to see the impact on their resources of bringing public sector style IR35 reforms into the private sector. My client estimates there is already a backlog of 500 man days’ work to clear the requests received since 25th May and they are still pouring in. This effort is unfunded. Straight cost to the client. The cost across industry must be vast. Major employers have already told the government they need more clarity for the post Brexit vision. We shouldn’t assume the government will take a cautious approach to more IR35 for fear of provoking a stampede from the City to Paris, Dublin and Frankfurt. Their currency is authority, not competence.

  2. Nick the realist

    The sole intention and success criteria of this whole IR35 exercise is to raise more revenue. HMRC will be judged on this basis alone. The private sector consultation’s main out recommendation will be that it has to fall in line with public sector – so as not to disadvantage the public sector. Clients are often too risk averse to offer outside IR35 contracts – due to the financial penalties. The only plus side for contractors are that some clients are upping their day rates

    • The Q

      “The sole intention and success criteria of this whole IR35
      exercise is to raise more revenue. HMRC will be judged on this basis alone.”

      They have been judged, and have been found wanting.

      1. Years ago, the True Labour govt were asked to state
      extra revenue + ROI for monies received due to IR35. They
      refused to answer, but tax experts reckoned it was next to nothing (based on the information they had access to) .

      2. The “success” of state sector IR35 has been built solely
      on the end service user (state depts) + agencies
      basically saying :

      we have neither the time nor money nor expertise to
      accurately give an ‘in/out’ verdict on every item of work
      we are offering, so we are saying “in” by default for a
      quiet life.

      Go figure.

      • Soprano

        To add to this – they can’t evidence their figures on ‘non compliance’ and these fail to account for corporation tax and dividend tax receipts for their public sector back of the envelope figures. It’s a load of patronising BS and only the gullible or insidious believe it or try to defend them.

    • Soprano

      So what’s your thoughts the crock of shite known as their consultation paper? Which had been found wanting on every front, being full of blatant lies.

      Kate Cottrell has a good piece on ContractorUK today ripping it apart and Dave Chaplin over at Contractor Calculator has a fact sheet rebutting their claims.

      • The Q

        “So what’s your thoughts the crock of shite known as their
        consultation paper? Which had been found wanting on
        every front, being full of blatant lies.”

        No different in concept or intent to the original 1999
        claims. There is no magic “gold seam” of tax revenue
        from this, and the IR :

        1. does not understand employee case law (as proven
        by tribunal after tribunal)

        2. wilfully ignores it when it does not rule in their favour

  3. Graham Webber

    First, I will declare an interest in that I work in the area of trying to solve tax enquiries for contractors. As such I have knowledge of the area but am not myself a contractor.
    The present actions from HMRC seeking to extend IR35 reform in blithe denial of its effect in the public sector, is based on two factors.
    One is that the original IR35 policy launched in 2000 has failed due to its illogical results, poor design and appalling administration. This is a huge embarrassment for HMRC and they now seek a 20 year retrospective law to hide their misdemeanors from the public.
    The second is that they want more money for less work. Make everybody be taxed as an employee and their life becomes easier.
    Interesting that a major reason for the reform in the private sector is the lack of resource HMRC has to chase down IR35 enquiries. Well, “No s**t Sherlock” who could have seen that coming. Combined with poor decision making in cases being taken (HMRC has lost more than they have won – denied in the consultation) they continue to spend our money in a hopeless cause.
    HMRC is out of control, unaccountable and unfit for purpose. Are we surprised then that we see this sort of paper?

  4. The Q

    Rhetorical question (of course they are) .

    The dogma-riddled IR jobsworth Nazis already have the
    mythical disease diagnosed ( “widespread avoidance” ) ,
    now they are working backwards to define the “cure” .

    And of course aided and abetted by govts of any
    political colour only too willing to play the “class warfare”
    or ‘squash the little man rather than big business’ cards.

  5. Necro

    HMRC havent a f*cking clue so yes, they do make it up as they go along. I believe people who were caught up in Isle of Man schemes have been told HMRC will not collect NICs due before 2009 as they are time barred. Except HMRC are now saying ‘Oh yes we can collect them. Pay up!’

  6. Nev

    “It doesn’t however tell us where to find such evidence which supports this statement”

    That smacks of denial, I think we all know that most contractors put their heads-in-sand re: IR35.

    HMRC are getting smarter, and they will enforce the payment of National insurance which, with the current non-enforcement of IR35, can be avoided. Its unfortunate that contractors will be hit with borth Employee and Employer contributions, but that the downside of years of mickey-taking and avoiding them.

    I speak as an ex-contractor, knowing that HMRC would eventually gain control of this problem, and personaly I didn’t want the risk of back-payments of unpaid for a rule that had clear intent but was prety much ignored – the honeymoon is over

    • Ying Tong

      The evidence of their continuing efforts to reform IR35 and recent case outcomes does not support the conclusion that they have, or will, get control of anything. HMRC have been tasked by the government to get blood out of a rock concurrently with the rock at risk of rolling off to Paris, Dublin, Frankfurt et al. Very tricky circle to square.

      There is talk of yet another general election within twelve months in a desperate attempt to reverse or dilute Brexit. Contractors’ interests might be best served by abstaining altogether until policy is clear. There is nothing which concentrates the mind of politicians better than the prospect of opposition.

  7. gladyslewis

    Thanks for such a nice read. I am sure that will not disappoint you! Go ahead!

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