HMRC off-payroll rules study slammed as unreliable and lacking rigour

The “full and accurate” probe into private sector IR35 reform which a House of Lords inquiry wants is far from how a new HMRC off-payroll rules study is being characterised by experts.

Despite its title, ‘Qualitive research with contractors providing services through a PSC,’ the 23-page PDF reads as a vindication of HMRC’s IR35 education initiatives more than a study.

There is no breakdown of contractors’ responses; no percentages for those responses and no list of the questions asked by the authors, HMRC’s Behaviour, Insight and Research team.

'Devoid of critical evaluation'

The boss of tax dispute advisory Tax Networks Ltd, Chris Leslie, who used to head up investigations for the Revenue, is red-faced for his old employer.

“[There’s] no publication of the questionnaires and the transcript responses themselves. Surely, these should have been included in the Appendices?

“[Without these] it’s a report based on hearsay and devoid of critical evaluation. [It is] unreliable and lacks rigour,” he said.

'Widely well-received'

Instead of annotated or percentage-tied responses, readers of the HMRC study are given the authors’ interpretation of how the PSCs who were quizzed – just 30 in total – came across.

For example, HMRC’s descriptions on IR35 reform were “widely well-received” and a visual repackaging detail in its criticised IR35 reform factsheet was “felt to be a valuable resource”.

Where less positive responses feature, these too are just described. Notably ‘Will you provide services via an intermediary post-April 6th?’ was “very difficult” for the PSCs to answer.

'Freudian slip'

Dr Iain Campbell, general-secretary of the IHPA, is critical of HMRC’s use of language in the study, dated July 2020 published on September 3, but carried out in February and March.

“Note the evident bias in their choice of words [in the questions which HMRC asked contractors] – ‘their employer.’ Employer? Seriously?

“This is not neutral language,” he said. “And [it] verges on a Freudian slip, revealing the outcome HMRC wants.”

As to the language which contractors understand, HMRC says the study found it is not “intermediary” nor “personal service company” as both terms “were not well understood”.

'Highly questionable'

Contractors prefer “limited company,” and prefer “client” to “hirer” as the latter is “not a familiar term for contractors,” assert the authors, albeit referring to just the 30 they asked.

“The value of this research is highly questionable, not least because the whole thing was based on just 30 contractors’ views,” says IR35 specialist Kate Cottrell.

“[However] it clearly shows that the level of understanding of the new rules was very low, despite having just weeks to go before the reform.”

'Unhelpful to HMRC'

Evidencing her claim, she added: “Many criticised HMRC’s information concentrating more on the reasons behind the reform rather than what the reforms meant for them.  

“Most had never even heard of the 2017 IR35 reforms, and most could not understand the terminology used such as ‘Off-payroll’, ‘Intermediary’ and ‘Personal Service Company.’” 

Formerly of the Revenue, the co-founder of Bauer & Cottrell also said the ‘study’ would “not be at all helpful to HMRC’s claims that blanket decisions were not being made.”

In fact, the contractors as a group “challenged” information from HMRC -- unspecified information, that blanket IR35 assessments are not being carried out, saying that they were.

'Not credible'

The contractor participants further relayed that the option open to them (and enshrined in the incoming legislation) to dispute the engager’s decision about their status was not “credible”.

Jeni Howard, head of compliance at Evolution Recruitment Solutions, believes HMRC should not be surprised at either of the findings.

And online, contractors confirmed: “In some cases it's a blanket decision rather than a blanket assessment”.

'Like it or lump it -- from April'

Another said: “This is exactly [what] happened on the programme I was working on -- blanket coverage of 99% [of PSCs as] inside IR35.

“There was no discussion [with the client], even when we challenged it. The same will happen again in April – ‘you are all inside IR35, like or lump it.”

“100% [agree with] this,” echoed a senior contract engineer at Tesco. “It happened at my current workplace too.”

'Swept under the carpet'

Matt Fryer, head of compliance at Brookson Legal, said the two findings were “swept under the carpet” in the government’s July 2019 response to the off-payroll rules consultation.

“Interesting that they made the cut in this piece of research,” he said yesterday.

“This time round, it is crucial that open lines of communication are kept throughout the process and throughout the supply chain.

“[But] it's slightly unnerving that I'm not seeing much of this at the moment and the clock is ticking.”

'Alarming lack of comprehension'

Bauer & Cottrell is unsettled too: “We have only six months to go before the reforms kick in and many contractors, hirers and some agencies are still none the wiser and not preparing. 

“Most concerning is -- we expect -- if the same research were to be undertaken in March 2021, the same alarming lack of comprehension [from HMRC] would be evident,” the firm said.

Visuals like IR35 flow charts emerged in the study as the educational format of choice for the quizzed contractors, who also suggested HMRC could do YouTube videos and webinars.


“Similarly, it was felt that key information in the factsheet could be made more visually obvious through bolding for example,” the study says, later building on the same idea:

“Given the value of this information to contractors [when HMRC will not open a new enquiry], putting it in bold…could help ensure it was understood first time.”

Yet not all contractors believe their focus increases if the thickness of letters conveying a message increases.

“Is this really supposed to be a professionally-written report, or is it a poor attempt of a mickey take?” one of the unconvinced asked online.


Aside to emboldening, the study authors say PSCs prefer explanations on the reform when they relate to how the changes are going to impact how they meet their tax obligations.

So what to do if determined employed would be useful, as would clarifying that they might no longer need to self-assess and providing them links to how to tot-up tax as an employee.

Similarly, contractors ‘appreciate’ being told they can use CEST, claim the HMRC authors, and feel “reassured” that the online tool is being “always improved.”

'Emotional and defensive contractors'

But in a less gushy paragraph, the study claims some negative reactions were noticed too.

“Explaining the reasons for the reforms led participants to become emotional and defensive”, it says. “[These reactions were noted] about their decision to use a limited company”.

The study by the Revenue, which in 2014 found tax to not be the main driver, concludes that such ‘emotional and defensive’ reactions could lead PSCs to “close off from other messages.”

'We can only wonder'

Last night, one adviser said curiosity and intrigue were the more likely reactions to the study, formally entitled ‘Communications Research: Off-Payroll Rules (IR35).’

“It is interesting that a decision was made to publish this now,” the adviser said. “We can only wonder if it was considered when they decided to delay the rules – we will never know.”

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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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