Top taxman redraws IR35 battle-lines with contractors

A top HMRC official yesterday redrew the battle-lines between IR35 inspectors and limited company contractors, at both the BBC and other organisations.

In a Q&A with MPs, Jim Harra said PSCs were guilty of a “very high level of [IR35] non-compliance” since 2000, forcing HMRC to have to ‘chase very large numbers of them.’

Mr Harra believes it is therefore not “harsh” of HMRC to pursue people for tax owed as a PSC, regardless of whether such people only used a PSC because their end-user forced them to.

'Pay us, regardless of your engager relationship'

“Whatever the relationship you have with your engager, you have to pay your tax,” he said, referring to PSCs at the BBC, where he said employment practices had been “adrift.”

But Mr Harra lay no blame for the ‘adrift’ status on either the BBC or the new IR35 regime. “We had over 100 [BBC] presenters under investigation long before the 2017 changes came in.

“[And] those changes don’t alter the liability for tax, they merely alter the person in the chain who has the responsibility of ensuring compliance,” he said.

'And their advisers'

Yet as well as pointing the finger at PSC contractors, he said accountants are guilty too, and says the government didn’t help from the outset. Mr Harra said: “If you look back at the [2000] proposals, you can see they were not enacted as HMRC would have wanted…

“But that’s what we were left with, and we had to spend a considerable number of years trying to make them work, in the face of widespread non-compliance by PSCs -- and their advisers.”

Elsewhere in his Q&A session with MPs on the Public Accounts Committee, Mr Harra seemed to endorse the idea of engagers reaching single IR35 settlements to cover their entire PSC workforce, as the BBC is trying to do with HMRC.

'Or any other engager'

HMRC’s second permanent secretary said: “In general, we are open to reaching settlement provided that we collect the tax that is due under the law. It is convenient for us [in administrative terms] if we can reach a global settlement for a large group of taxpayers”.

Later, he reiterated: “We are open to engaging with anyone on behalf of PSCs who can sort out their compliance and sort out their tax bills. And as I say, there’s no reason why we couldn’t reach a global settlement with the BBC or any other engager”.

The tax official also appeared to suggest that even trade groups could potentially follow in the footsteps of the BBC, despite an HMRC dispute specialist's suggestion that such settlements are unfair to PSCs whose clients will not qualify for them.

Mr Harra said: “The most convenient way is if a body that represents a large number of people can bring them together and reach a global position with us, we are committed to making sure that the settlements are correct in law”.

'Zero' CEST updates

Meanwhile, ahead of today’s release of the private sector IR35 reform consultation, the MPs were told that HMRC will refine CEST, ‘so that it applies to a wider range of engagements.’

As to updates to CEST in the last 12 months, Mr Harra said he was sure that “more than zero” revisions -- as one MP put it, had been made. But he was not able to point to any.

“This is our experience of off-payroll working generally,” the top taxman told MPs, indicating that the BBC – as an engager -- is not a unique case of (or culpable for) IR35 non-compliance.

He added: “Despite a policy solution having been put in place in 2000, there were very high levels of non-compliance with that, so we were left to chase PSCs and try to get them to comply; very large numbers of them.

“And that’s why from an administrative point of view and a compliance point of view, the changes that were introduced in 2017 and that are going to be introduced in 2020 will be, I’m sure, much more effective in ensuring compliance an ongoing basis.”

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