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HMRC’s IR35 study ‘fails to address the severity of reform’

HMRC’s IR35 study slammed by industry expert 

HMRC’s study into how well it has communicated the off-payroll tax reforms (IR35) to contractors fails to address the real concerns, says IPSE’s Andy Chamberlain, director of policy at the lobbying body. 

The report, titled ‘Qualitative research with contractors providing services through a Personal Service Company’, is a series of interviews with 30 contractors about how aware they were about the IR35 reforms.

The study concluded that “awareness and understanding of IR35 varied” depending on the sector contractors worked in. And HMRC’s “communications materials which presented information visually resonated well and communicated information effectively to participants”.

Agencies and end-clients need to understand IR35 now

But what is the relevance of this?

“HMRC has focused most of its communications on end clients and agencies, because they previously never had to worry about IR35”, adds Chamberlain.

“Now all of a sudden, end clients and agencies have to understand the rules much more, so HMRC has had a job to do to get clients to understand they now have this responsibility and liability.

“But the people at the bottom of this chain who are really being impacted by these decisions that are being taken above them, are the contractors. The House of Lords has said we need a full analysis of what happened in the public sector when the reforms were rolled out, but that’s never been done.”

In April 2017, changes to the IR35 rules were implemented in the public sector. The reforms shifted the burden of responsibility for determining a contractor’s IR35 status to the engager. The rules were due to come in effect in April 2020, but were delayed for 12 months due to the Coronavirus pandemic. They will now be introduced on 6th April 2021. 

No “honest assessment” of IR35 reform

In April this year, the House of Lords published the report Off-payroll working: treating people fairly’, which dubbed the IR35 rules as “flawed”, stating that the legislation has “never worked satisfactorily” since it was introduced 20 years ago.

The report called for the government to commission an independent review of the reforms in the public sector and analyse how introducing them in the private sector could affect the labour market.

It also suggested that the government should implement the recommendations in the Taylor Review, arguing that it offers the best “long-term” solution to taxation.

Focusing on this, Chamberlain said: “We didn’t get any of that. We got no independent chair, no review of what happened in the public sector, the legislation or the timing. This was all before the rollout of the reforms were delayed.

“This latest study does acknowledge that the changes to the IR35 rules will change the work and tax status for people. But what it doesn’t do is give an honest assessment.”

Failure to address impact of IR35 changes

“It does not say that it will ‘drive a wedge between hirers and contractors’ or ‘this is going to prevent hirers from hiring contractors’ – particularly at a time when we’re in the midst of pandemic and the recession that has been caused by it,” Chamberlain explained. 

“I don’t think it addresses the severity of how much change this will be for many contractors.”

In response, a HMRC spokesperson told Contractor Weekly: “The research tested communications designed to inform contractors about changes to the off-payroll working rules (IR35). 

“The products tested were designed to inform contractors about if and how they would be affected by the rule changes and what actions, if any, they needed to take as a result. 

“Perceptions toward the IR35 policy were not part of this research.”

By Contractor Weekly

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1 thought on “HMRC’s IR35 study ‘fails to address the severity of reform’”

  1. No longer Working

    They didn’t listen then

    And

    They won’t listen now

    2 qtrs of zero vat returns and no income except UC

    Brilliant move HMRC, still Indian consultancies are hiring but only Indians.

    Perverse consequences of bad tax rules.

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