HMRC revises IR35 guidance at public gigs

The taxman has clarified who is potentially in scope of his off-payroll rules, due to “feedback” from those trying to understand them since they were introduced in April.

In a small but significant update, HM Revenue & Customs said it had added an explanation into its existing guidance, notably under a section entitled “When… [the] rules don’t apply.”

Confusingly, the explanation actually relates to when the rules “may apply.” But a HMRC spokesman hinted it was necessary, calling it its “response to feedback to help customers”.    

The clarification reads: “If the worker is engaged by the agency, umbrella company or similar third party through the worker’s intermediary then the off-payroll working rules may apply.”

'Similar third-party'

In the context which the Revenue envisages, “similar third party” refers to a fee-payer, such as a labour provider, that does not also operate as an employment agency.

The spokesman reflected: “HMRC has revised part of its guidance on off-payroll working rules, in response to feedback to help customers understand and implement the rules.”

The revision was made a few days before publication of the latest minutes from the IR35 Forum -- which met in July, in what was the first forum meeting since the rules took effect.

So the headline figure (disclosed at the meeting), that the IR35 digital tool has been run by affected parties approximately 450,000 times is, by now, to undershoot its usage.

But even this figure is high enough for the Revenue to claim the tool has been a success -- the type of claim which observers say it would need to make to roll-out the rules to all PSCs.

'Higher rates'

There are additional sentences in the minutes that any case to extend the rules would likely draw on; “Some [contractors are negotiating] higher rates to compensate for the reforms.”

Or, “HMRC has seen no evidence of significant impact on attrition rates of contractors…in the public sector.” Another is that the digital tool, “reaches a determination 85% of the time.”

But even this boast by HMRC, highlighting a seemingly high decisiveness level of the tool -- now renamed ‘CEST’(Check Employment Status for Tax), was overshadowed, in terms of its significance about potential private sector IR35 reform.

When asked directly if the rules it now polices in the public sector would extend to the private sector, there was a notable change in HMRC’s response from the usual ‘no plans to.’

“The current focus is on embedding the recent reform,” said the Revenue, in line with one ex-inspector’s assessment, but seeming to imply that HMRC can have another focus, in the future.

'Private sector'

More ominously for those dreading an IR35 rule-change at commercial clients, HMRC added: “However, we do of course want to see compliance improve in the private sector.”

The Revenue giving an answer it wasn’t asked for may make some suspicious. But for now, contractors and others caught up in off-payroll compliance checks are likely just frustrated.

“Cases could take extended periods to resolve,” admitted the tax officials, referring to what they deem ‘high risk’ cases, typically involving “multiple” engagements.

In addition, and identifying another problem, “reasons behind decisions of whether a worker is inside or outside of the legislation are not being passed further down the chain.”


More positively for the time-pressed contractor (and their end-user), HMRC “confirmed that when the tool is updated [by HMRC as it was in April], the previous results remain valid”.

So directly at odds with the IR35 expert who advised that a change in what the tool asks, requires the tool to be run again to ask the new inputs, “there is no need to re-run” it.

Without an explanation recorded in the minutes, the department then seemed to move on, pointing out its plans to, “release explanation notes following each change to the service.”

But there are no plans for CEST (formerly the ESS) to “provide a unique reference number for each determination,” despite forum members being “keen” for such a numbering system.


“This option had been discounted during design,” the members were told. “Users of the tool should keep an electronic copy of the determination which would amount to the same thing.”

The members, such as IPSE, Brookson and Bauer & Cottrell, had more luck asking HMRC for examples of ‘contracting out’ and ‘managing service,’ as officials agreed to provide them. 

Yet for both HMRC and the forum, the spotlight turned on them. The former’s Contract Review service is in decline (for three months in a row), and the latter faces a review of its terms and members.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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