IR35 experts attack HMRC's 'client-led disagreement process'

Three tax experts are attacking a proposal to leave disputes about IR35 decisions to clients, not HMRC, by requiring engagers to set up internal status disagreement processes from 2020.

Even though they sound less than mandatory -- HMRC only says clients “may” have to run the processes, the trio says it is unfair to imply clients must be ready with them by next April.

But it is mainly unfair to contractors. “The off-payroll worker is not going to have any independent body to appeal to,” says Helen Christopher, a director at Orange Genie.

“And while the client may be encouraged to consider the worker’s or fee-payer’s evidence before determining an appeal, the client will, in effect, be acting as both judge and jury.”

'Consideration'

In line with her analysis, HMRC says that “as a minimum”, it expects the “client-led” disagreement “process to include the consideration of evidence” from the other parties.

But the mere fact that the Revenue is already having to lay down the least acceptable standard for what the process should include is unsettling one of its former inspectors.

“It’s paramount that any appeals system is easily understood, easily accessible and the same for all parties within the private sector,” says Qdos’ Nigel Nordone, an ex-tax official.

“[Asking] engagers to come up with their own internal dispute process…will lead to confusion, inconsistency and unfairness -- [which is unacceptable] in reform as important as this.”

'Recipe for major disputes'

It will also lead to ‘all-out status wars,’ quite at odds with HMRC’s claim in its consultation that, due to the processes, “fewer” workers will challenge determinations at the year-end.

“A process where the worker can submit evidence supporting any claim they’re making to be outside the new off payroll rules is a recipe for major disputes,” warns Kingston Smith.

The chartered accountancy firm’s head of tax, Tim Stovold, explained that by having a system in place, clients will -- in effect, be asking contractors to resist being treated as staff.

'Unsympathetic HMRC'

But HMRC will be “unsympathetic” to this, as “they expect businesses within this new regime to have ‘sophisticated HR processes in place’.

“Or [engagers] will sub-contract these problems to ‘relevant service providers for managing workplace disputes,’” he added, quoting from the IR35 reform consultation which is open until May.

The accountant warned: “Putting in place a legally-compliant ‘disagreement process’ will be a major challenge to many businesses that do not have in-house HR advisory teams.”

HMRC disagrees. “The government considers requiring clients to set up such a process would not place a disproportionate administrative burdens on these organisations,” it says.

“Public sector and medium/large-sized private sector organisations are likely to already have relatively sophisticated HR processes in place either in-house or sub-contracted to relevant service providers for managing workplace disputes.”

'Desireable'

Those who disagree can answer both consultation questions 14 (‘Is a client-led disagreement process desirable?’) and 15, (‘Would setting up and administering it be burdensome?’).

Before the questions, HMRC says: “The government believes that the most effective approach [for contractors to challenge determinations] would be for clients to develop and implement a process to resolve disagreements based on a set of requirements set out in legislation.

“The introduction of a client-led status disagreement process would allow organisations to tailor the process to fit in with their wider business processes”.

'Not equipped'

To Orange Genie, the subtext of the government’s wording is that the Revenue is learning from its mistakes, but also passing the buck.

“A criticism of the public sector rules is the lack of appeal process for an off-payroll worker” says Ms Christopher. “Whilst acknowledging that this is an issue, the government’s response is to suggest that….[it’s something to be resolved by] end-clients”.

She added: “As well as the end-client getting to be [both] decision-maker and adjudicator, this process is also going to rely on the end-client being sufficiently able to make the decision in the first instance, something many do not feel equipped to do.”