Concerns grow about HMRC’s laisse-faire approach to IR35 reform

Meg Hillier MP, who sits on the Public Accounts Committee (PAC), has grown concerned about a new worrying trend from HM Revenue & Customs (HMRC) after she quizzed representatives about reforms to IR35 and the lessons that had been learned so far.

Speaking during a recent committee hearing, she asked Jim Harra, HMRC’s Chief Executive, why “every time you come up with a figure, you say, ‘but the majority disagreed’.”

Ms Hillier isn’t the only one concerned about the nonchalant nature of HMRC of late, which seems to be keen to sweep criticism and concern under the carpet.

It is becoming increasingly challenging for committees and others to get a straight answer from HMRC, particularly when it comes to the issues created by IR35.

Many have pointed to the basic assumptions made by HMRC, which don’t seem to be backed by any credible evidence or stand up to scrutiny.

Here are just some of the assumptions that HMRC has made in recent PAC meetings that have raised eyebrows amongst experts and MPs.

  • CEST – There is a belief that because the CEST tool has been used 1.2million times, it indicates that it is being widely adopted, on a case-by-case basis, to make accurate determinations. However, it has been revealed that HMRC cannot actually identify who has used CEST, how many times and for which contracts.
  • Blanket bans – During one of it’s PAC sessions, HMRC claimed that it only found a single case in the public sector of a blanket ban. They are yet to comment on the scale of research they conducted. This analysis cannot, therefore, provide clear evidence of whether the practice is widespread or not.
  • Accurate figures – Time and time again HMRC has been shown not to have accurate figures when it comes to IR35 when asked by the PAC.

    At the time of publication, HMRC is yet to make figures for 2019/20 available and, therefore, cannot claim, as it has done, to base reform on concrete evidence. In fact, it has been suggested that they cannot actually identify IR35 being the cause of increased revenue.

  • The administrative burden of IR35 reform – Perhaps, naively, HMRC estimated that the costs of IR35 reform to organisations were minimal and that contractors did not have to pay for IR35 assessments. They have also said that the time required to make assessments was minimal but seem to have completely disregarded cases where contractors disagreed with determinations.
  • IR35 contractors taxed too much – A report by the National Audit Office on IR35 reform has shown that HMRC has collected the wrong amount of tax from many contractors caught out by the new rules. However, very few contractors are yet to receive a refund or notification that they may have overpaid tax, despite HMRC admitting errors were made.

This collection of errors, oversights and assumptions may seem minor at first, but when they have a very real impact on the lives of contractors, it doesn’t seem like such a small deal.

The taxman may be telling the PAC not to worry and claiming that IR35 is a success, but those in the industry, contractors and MPs seem to be aware of the risks and realities of the off-payroll rules.