IR35 research subjects make charges against HMRC
Participators of behind-closed-doors research into IR35 and employment status that HMRC commissioned have spoken out from the shadows, due to dissatisfaction with the department.
Called to the Revenue’s offices to help it develop the IR35 digital tool, which is meant to be launched before April, an accountancy firm accused the tax staff it met of a worrying level of naivety.
“They still look at assessing IR35 status by thinking everybody operates in exactly the same way,” the firm said, recalling its meeting. “It’s worryingly naïve; they haven’t moved on from ‘one-size-fits-all.’”
A parallel research exercise, set up by HMRC to explore issues that employers encounter when categorising the status of workers, is also drawing the department criticism.
“HMRC are being disingenuous,” said one staffing boss approached by researchers for the exercise. “If they genuinely wanted to solve the problem, then they wouldn’t start so late in the day.
“On status with PSCs for example, they’re researching a 16-year-old issue some five months before it’s meant to change; is that the action of an organisation that really wants to solve the problem?”
Aware that accountants have been assisting the Revenue too, notably with the development of the IR35 digital tool which is tied to April 2017's new IR35 regime for public sector PSCs, the boss said it was a case in point.
“They promised a tool to sort out IR35 but are still asking [accountants] if [their] field data supports the ability to have a tool that produces an assessment, just months before the tool’s live date. It’s ridiculous.”
The accountancy firm that met the taxman to help with the tool says there was little more on the table than a list of status-related questions, with a list of corresponding answers.
“They have gone no further than identifying…an algorithm that will give an outside or inside IR35 answer. They are still researching, debating and discussing the correct questions to ask.”
The firm adds that HMRC seemed unaware of practical problems from basing an inside/outside answer on a set of questions -- the same problems, perhaps, that the Business Entity Tests ran into and caused them to be withdrawn.
“[It was also] news to them [HMRC] that a question would have to be phrased in a particular way to suit the sector being operated in,” said the firm, a specialist in contractor tax affairs.
“The question of ‘Control’ for Health sector [PSCs] would need to be phrased differently to those PSCs in a Creative or Media environment, and differently to those in an IT situation.”
The staffing boss reflected: “To still be researching how that tool is going to work [on public sector PSCs] a matter of months before it is live just doesn’t sit right.
“Nor does their refusal to say how it’s going work-- even though they’ve committed to April and to make matters worse, they’re telling affected parties they’re not going to release details until March; it’s just going to be a fiasco.”
Of the employment status research that his staffing company was selected for, HM Revenue & Customs said it was actually part of the department's response to the OTS’s 2015 employment status review.
Described by a HMRC spokesman as “ongoing,” the research is two-fold; a survey into the difficulty SMEs have in “correctly categorising status” of workers and the barriers to doing so, plus follow-up interviews. The findings are due to be publicised in 2017.
The staffing boss, who sounded reassured that the researchers conducting the interviews are independent of HMRC, said: “My suspicion is that the Revenue still has no idea of how to write a set of employment tests… and are conducting this research in the hope it will give them something they can justify.”
The revelations from both the contractor service providers come ahead of today’s Autumn Statement 2016 which a former tax inspector has said will contain an all-clear to reform IR35 in the public sector, which mandates the tool’s use from April 2017.
Another adviser to contractors reflected last night: “It’s going to be effective from April, but some of the government's own end-users are concerned because they are not in a position to implement the changes, so the public sector itself is asking for a year’s delay.”