'Disappointed' contractor sector pans HMRC off-payroll guidance, again
An official IR35 briefing note by HMRC on reform to the off-payroll working rules from April 2020 has been met by the contractor industry with widespread disappointment.
In fact, all five industry advisers who ContractorUK approached yesterday about the 900-word IR35 guidance, gave underwhelmed, cautious or just plain negative assessments.
Putting it the most politely was Lawspeed. The law firm said the note was “not as yet the substantive and detailed guidance that the recruitment industry and its clients want and need.”
A more plain-speaking CWC Solutions preferred of the four-part Revenue guidance: “Bar one or two interesting statements, there’s simply nothing new here.”
The FCSA agreed. “For what it's worth, [it’s] here”, it said, linking to the note. “It doesn't tell us much new, except that there will be an updated CEST tool before the end of the year.”
Qdos enforced: “It’s lightweight. And it fails to address our concerns about both CEST and particular aspects of the incoming reform, such as [how to] overturn an unfair IR35 decision.”
HMRC last unveiled guidance on the 2020 rules in August, for clients and intermediaries. But IPSE panned it. The hope at the Revenue must have been for a better reception this time.
“[This HMRC] briefing…offers little comfort to concerned self-employed people,” says a still-disappointed Andy Chamberlain, IPSE’s deputy director of policy, speaking yesterday.
“[These contractors] have already been told they must move into umbrella companies, go PAYE or cease contracting for these organisations altogether.”
'Businesses are complaining'
The backdrop is not lost on Bauer & Cottrell, an IR35 advisory either. “One has to wonder why HMRC thinks it necessary to issue this briefing now.
“Is it because large and medium-sized businesses are complaining that key talent that they need are likely to walk?” the advisory asks. “And walk, due to the risk of retrospective investigation?”
To address the point, the HMRC note relays the department’s “decision” to “only” use details which the IR35 changes unearth for “new” enquiries into “earlier years,” where its officers “suspect fraud or criminal behaviour.”
Kate Cottrell, Bauer & Cottrell’s co-founder reflected: “This goes further than their previous claims for not opening retrospective investigations.
“But I still have doubts that they can in fact say this unless of course the final legislation has been amended to claim this. I would be very wary of the word ‘suspect’.
“However, if it is as they claim, then there would be nothing to stop thousands of inside IR35 contractors now claiming an outside IR35 position for the 2019/20 tax year!
“This would not seem to amount to fraud or criminal behaviour and they would have nothing to fear. But how does this stance sit with the GSK contractors or the BBC presenters?”
The Revenue’s use of the word ‘new’ before the word ‘enquiry’ seems to address this point, but Cottrell insists HMRC’s wording may still have “far-reaching unintended consequences.”
'Ignores the facts'
Yet it is the immediately preceding paragraph in the new IR35 guidance that troubles Seb Maley, CEO at Qdos. The HMRC paragraph he takes issue with states:
“This reform does not prevent people from working through their own limited companies and does not affect the self-employed,” the guidance says. “Contractors who are following the existing rules correctly will feel little impact.”
Mr Maley said: “This is only true if the client determines IR35 status accurately.
“While we are confident many private sector firms will do this in time, to say reform will barely impact IR35 compliant contractors and the self-employed ignores the fact thousands of genuinely self-employed workers were wrongly placed inside IR35 in the public sector.”
'Focus on rate renegotiation'
There are other echoes of the public sector IR35 reform experience – since April 2017 but ongoing today. Pointing to figures used by HMRC in its note, CWC’s Carolyn Walsh said:
“If hirers maintain current contract rates and decide the off-payroll working rules apply, contractors on £50,000 will see a net loss of £1,000 per year, while hirers will see an increase of 10% in the cost of hiring contractors.
“If hirers do decide to make blanket decisions -- as public ones did -- to the effect that IR35 applies, armed with the knowledge of how the rules should apply, the focus will be on the renegotiation on rates.”
'Hounding the self-employed'
IPSE’s Mr Chamberlain referred yesterday to the same HMRC paragraph, but because of a different objection.
“One of the major reasons for the change to IR35 [according to HMRC in the note] is that at the moment, a self-employed person on £50,000 a year and who ‘doesn’t follow the rules’, will pay £6,000 less tax.
“[But HMRC] then admits that ‘this includes employer NICs of around £5,000,” he said. “This begs the question: why is HMRC hounding the self-employed for tax that should come from employers? The focus should be on clients who engage them.”
'Entirely HMRC's opinion'
Yet such end-users are who HMRC is working closest with -- 2,000 of the largest ones have received “one-to-one” support, the note says, and it has reached out to 15,000 mid-sized ones.
“[The Revenue’s] specialist teams [have been working with] businesses to ‘get the status of the contractors they engage right,’” said Ms Cottrell, quoting from the online guidance.
“But it should always be remembered that this ‘getting it right’ is entirely HMRC’s opinion. And if the cases going through the tribunals and courts are anything to go by, HMRC more often than not actually gets the status wrong.”
The former tax inspector added: “It seems that HMRC are doing what they did with the public sector and putting pressure on organisations to ensure that they can claim that the roll-out to the private sector is a resounding success. Time will tell.”