The taxman is criticised by experts after updating its online IR35 guidance
The tax office’s latest IR35 guidance update has been met with criticism by specialists, who have blasted HMRC for failing – so far – to deliver on promises to better equip the private sector for the arrival of IR35 reform next year.
Several amendments to the information, which has been produced to advise organisations on how to manage IR35 changes, have been described by experts as “lightweight” and “disappointing” and will offer “little comfort to the millions of self-employed” preparing for the introduction of reform.
IR35 compliant contractors “will feel little impact”
Aside from not being substantial enough, HMRC’s briefing document was also condemned because it claimed the “reform does not prevent people from working through their own limited companies and does not affect the self-employed.” It then went on to state that “contractors who are following the existing rules correctly will feel little impact.”
Responding to this specific point, Qdos CEO, Seb Maley, disagreed strongly. He said: “To say reform will barely impact IR35 compliant contractors and the self-employed ignores the fact thousands of genuinely self-employed workers were wrongly placed inside IR35 in the public sector.”
Meanwhile, IPSE expressed similar concerns, with Deputy Director of Policy, Andy Chamberlain, referencing the trend emerging in the banking sector, which will see genuine contractors forced onto the payroll. He explained: “Tell this to the thousands of contractors working for Barclays, Lloyds, HSBC and Tesco Bank who have already been told they must move into umbrella companies, go PAYE or cease contracting for these organisations altogether.”
“Enhanced CEST” to arrive by end of 2019
The guidance said that an improved version of CEST – HMRC’s controversial IR35 tool – will be launched before the end of this year. The tax office also stated that over 300 stakeholders have offered input to make the tool “clearer, reduce user error and consider more detailed information.”
While a reliable tool is what IR35 experts and contractors both want, the fact HMRC hasn’t detailed any of these improvements is worrying, explained Qdos. Mr Maley said the document “fails to address our concerns regarding CEST or particular aspects of the incoming reform.”
Similarily, IPSE’s Andy Chamberlain asked the pertinent question: “If HMRC is so confident in the CEST tool, why is it changing it now?”
Following discussions with HMRC, IPSE has made it clear that CEST mustn’t assume that Mutuality of Obligation (MoO) exists in all contractor engagements. However, in this guidance update, HMRC makes no mention of its plans for MoO. Focusing on this, Mr Chamberlain said: “The tool does indeed urgently need to be refined and updated, but in all our talks with HMRC, they have been adamant they will not change it to factor in Mutuality of Obligation. Therefore, we doubt this ‘enhanced version’ will improve matters at all for the self-employed.”
IR35 changes to “provide £3billion”
After reiterating that it believes just one in ten contractors who ought to be operating inside IR35 are currently doing so and saying that IR35 reform “will level the playing field”, HMRC also said it expects IR35 reform to earn the Government £3billion, which will be used for “essential public services, including the NHS, over the next 4 years.”
HMRC providing “one-to-one support”
In addition to having dedicated teams in place to help private sector firms implement IR35 changes, HMRC explained that it’s offering “one-to-one support for 2,000 of the UK’s biggest employers and direct communications to around 15,000 medium-sized businesses.”
While on the face of it, this might give contractors some confidence, Qdos CEO, Mr Maley, was sceptical that HMRC will be able to genuinely help businesses, commenting: “Firms that rely on contractors and want to continue benefitting from engaging these workers compliantly outside IR35 would be wise to seek specialist advice.”
To read HMRC’s IR35 guidance in full, please visit the Government website here.
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