Last month, we warned that HMRC’s continued self-delusion risked contaminating the government’s decision-making process, and that HMRC was actually taking worsening compliance as proof that its approach was working. ContractorCalculator’s Dave Chaplin picks up the thread.
Despite numerous problems with the 2017 roll-out to the public sector, it is clear that HMRC intends to press ahead with its “reform” of the off-payroll working or IR35 regime to encompass the private sector as well.
- The consultation document itself was published on 18 May 2018, together with
- Research following the 2017 public sector roll-out
- A “factsheet”
Mystery statistics and misleading claims have been a recurring theme in HMRC’s own promotion of the IR35 rules. In contrast, there is a wealth of proof from multiple sources, which HMRC has dismissed in its consultation and accompanying factsheet as ‘anecdotal’ and ‘rumours’.
That body of evidence includes:
- A survey of more than 1,500 contractors by ContractorCalculator
- Findings gathered from 1,494 recruitment firms by the Association of Professional Staffing Companies (APSCo)
- A Freelancer and Contractor Services Association (FCSA) survey of intermediaries supporting more than 33,500 public sector workers
- A survey of 450 healthcare locums by ContractorCalculator and the Independent Health Professionals Association (IHPA)
- Findings gathered from more than 500 contractors, hiring managers and business leaders by Harvey Nash
- Multiple investigative journalism items from ContractorCalculator and The Times.
Indeed, HMRC’s own research revealed that:
- 32% of public sector bodies said that it was now more difficult to fill contract vacancies
- 46% of public bodies said that they had had disputes over status with contractors
- 51% of public sector bodies said that it had been difficult to comply with the new regulations
But HMRC has chosen to ignore these problems, and instead to cherry-pick and to misconstrue the research material, to provide an inaccurate representation of the reforms. HMRC maintains that the reforms have helped improve compliance with IR35. However, if CEST’s assessment figures are anything to go by, the taxman’s increased tax yield is merely a result of rising non-compliance – this time among hirers and agencies.
HMRC Loses Latest IR35 Case
In fact, HMRC has just lost another IR35 case at tribunal – Jensal Software Limited v HMRC (2017) TC 00667. What is worse, this is the second time that HMRC has targeted this particular taxpayer for IR35 – and the second time it has lost!
Of particular note was the judge’s clarification of the key employment test of Mutuality of Obligation, or MOO. The ruling contradicted the recent claims put forward by HMRC that all contractors are caught by MOO, which they used to justify why they did not include it in their online IR35 status check tool (CEST). The irreducible minimum of obligation that HMRC argued was sufficient, exists in basically every contract, but it's not enough to prove IR35 applies: there has to be an obligation for the hirer to provide continued work and an obligation for the contractor to accept the work offered.
This case clearly shows that HMRC does not understand IR35, does not understand employment status case law, and is not capable of effectively enforcing the legislation. Promoting CEST, a tool intended to support hirers, but which creates even more uncertainty instead, has only compounded the problem. If HMRC is capable of making mistakes of this magnitude how can they expect companies that hire contractors to make accurate assessments? If this goes ahead it will be a complete car crash.
The consultation is open until 10 August 2018. ContractorCalculator has devised its own factsheet, with references to back up the facts, in response to the one HMRC has produced to support its consultation. Needless to say, we think ours more accurately reflects “the real IR35”. We hope that agents and firms will respond robustly to the consultation, so that HMRC cannot get away with this any longer.