HMRC charges IR35 adviser with 'nit-picking' for exposing 25 off-payroll webinar 'errors'

The taxman has accused a respected adviser to contractors of “nit-picking” for uncovering 25 potential mistakes in an official HMRC webinar on IR35.

David Kirk, a status specialist, took to LinkedIn to say he was “aghast” at the sheer amount of misleading and “downright wrong” statements HMRC made in the March 5th webinar.

Ten of them reproduced below, the 25 include HMRC implying legal duties which don’t exist; ill-advising on duties which exist, erring on SDS validity and glossing over NI liability.

'Nit-pickers-in-chief'

But asked how its IR35 reform webinar for agencies could possibly contain so many errors, HMRC told ContractorUK that, if it was ‘being generous,’ Mr Kirk was “nit-picking.”

Yesterday, the adviser sounded surprisingly flattered, however. “Coming from the country’s nit-pickers-in-chief [-- HMRC], I take that as a compliment,” he told ContractorUK, adding:

“It shows [me] that they agree that my…[LinkedIn] post was accurate. Nit-picking is a tiresome chore, but an essential one if you are going to have a healthy head.”

'Fulfils its purpose'

An official HMRC statement on the ‘25 errors’ allegation about the off-payroll webinar omits the ‘nit-picking’ charge against Mr Kirk.

But it echoes what HMRC then insinuated in the email exchange with ContractorUK in which it made the slur -- that recruitment agencies can only digest information that is basic.

“Our webinar content is accurate and fulfils its purpose of providing accessible information to help organisations understand and prepare for the changes to the off-payroll working rules.

“We use straightforward examples and explanations,” the statement from HMRC’s press office continues, “to illustrate how different areas of the rules affect…agencies”.

Saying the same is done for clients and contractors, the statement adds that HMRC uses such “straightforward” content  to cover “legislative requirements of the rules, and best-practice.”

'It's just HMRC's interpretation'

But it doesn’t, or at least it doesn’t appear to according to not just the founder of David Kirk & Co, but also the founder of IR35 advisory Bauer & Cottrell.

“David [Kirk] is absolutely right in his assertions,” begins the advisory’s co-founder Kate Cottrell.

“Rule number one -- read the actual legislation. HMRC’s ‘guidance’ whether in written form or via webinar is just that – ‘guidance.’ It’s just their own interpretation of the law. 

“And as we know from a number of IR35 cases, HMRC is often wrong and as the online post points out, the tribunals and courts do not approach the subject in the same way as HMRC.”

'Unaccpetable, shocking'

Formerly an inspector at the Revenue, Cottrell sounded mindful of the ‘nit-picking’ slur by saying that for “any” errors to be in HMRC’s information on IR35 was “unacceptable.”

“With not even two weeks until the new rules, it is shocking for anything misleading to be in HMRC statements on IR35,” she said, referring to Mr Kirk calling 5 of the 25 “misleading.”

When asked about the numerous errors it allegedly made in advising the agencies, HMRC said such webinars were ‘only part of ’ its “comprehensive” education and support package for taxpayers affected by the April 6th reform.

'A lot of time and respect'

“It would be far more appropriate for HMRC to [respond by] dealing with each and every ‘nit’ that he [Mr Kirk] has succeeded in picking,” says egos’ legal consultant Roger Sinclair.

“Now, if they could have done that, and demonstrated that each and every one of the 25 is no more than a ‘picked nit,’ then their response would deserve to be taken seriously.”

Mr Sinclair also said that, just as a “a lot of time and respect” has clearly gone into the LinkedIn post, in his vast experience of the industry, the post’s author deserves the same.

'Did HMRC take Reasonable Care prepping its webinar?'

Himself a specialist (albeit in contract law) Mr Sinclair mused: “Perhaps you might ask HMRC if they [too took] ‘Reasonable Care’ [in preparing the advice it gave in its webinar]?’

But it is the framework as a whole, not just the ‘RC’ clause on how contractors’ IR35 status should be tested for, that lies at the root of the problem according to Brookson Legal.

“[To me, this all] demonstrates that the new IR35 rules are complicated and have different implications for different people”, says the firm’s head of legal Matt Fryer.

“All stakeholders would be advised to take specific advice relevant to their circumstances if they are unsure as to what these changes mean to them.”

'Dangerous to rely on IR35 webinar info from HMRC'

Asked if HMRC webinars should be relied upon for accurate information on IR35, Mr Fryer suggested they probably should not. At least not anymore, and not entirely.

“HMRC have tried hard to educate, but their updates are very generic and cannot be tailored to give specific advice. It would therefore be dangerous to rely on information provided in a HMRC webinar,” he warned.

Despite being name-called by HMRC, Mr Kirk believes such refraining may be a bit drastic.

'Agencies must have robust contracts in place'

He told ContractorUK last night: “I wouldn’t go so far as to say to fee-payers never to rely on HMRC advice. The webinar does tell them what HMRC are interested in enforcing. 

“But I would say to agencies to check out what they are doing with professional advisers. The most important thing that agencies need to do, which HMRC can’t and won’t give advice on, is to make sure that their contracts are robust.  

“In this instance, that means that they get indemnified by clients if they get a large PAYE bill from HMRC, when they have been told by clients through status determination statements that people are outside [the] off-payroll [rules]. They risk having something completely unaffordable on their hands if they don’t.”  

'Off-payroll rules far too complicated'

But the status specialist agreed with Brookson’s Mr Fryer that complication is the nub.

In fact, sheer complexity of the legislation is how Mr Kirk believes HMRC can potentially drop 25 clangers in a 64-minute webinar, further to it going to court over an IR35 status determination that went against it, only for that determination to go against it a second time.

“In terms of how HMRC gets the [incoming off-payroll] legislation wrong, it’s because it is far too complicated,” he began.

“The intermediary rules run to 31 pages of small print in my Tolley’s Yellow Tax Handbook, which you need a doctorate in gobbledygook to understand -- whereas the provisions charging ordinary straightforward employees are only seven lines long. The fundamental problem is that the PAYE system simply isn’t designed to pick up tax off intermediaries, so any solution is bound to be problematic.”

'To no avail'

Previously seconded to the Treasury to help make IR35 simpler, Ms Cottrell echoed: “The fact is we have extremely complicated legislation from April 6th, with such complication recognised by HMRC and evidenced by the sheer number of aspects HMRC are having to provide guidance upon. 

“Ironically, all these issues including complicated contractual chains, overseas implications together with a whole host of different responsibilities and liabilities for each party have been brought to HMRC’s attention. By me, and numerous others for years now -- to no avail."

Ten extracts from David Kirk’s ‘The HMRC webinar with 25 errors in it.’

  1. At 15:35:‘It is the deemed employer that holds the responsibility for deducting the tax and National Insurance from any payment going to the contractor’s PSC and paying these over to HMRC.’ 

    Omits something important, and wrong in the context given. The requirement is to deduct tax and NICs from the payment made by the deemed employer, which will not necessarily be the same payment as that made to the contractor’s PSC.  This is therefore true where the deemed employer is the fee-payer, but not where it is some other party such as the client or the lowest qualifying person in the chain, which is what this passage was talking about.
     
  2. At 23:06:‘Once the client has decided whether or not the rules do apply, they must set out that decision in a status determination statement, or SDS.’ 

    Wrong. There is no legal requirement for this, and where the client pays the intermediary directly there are no legal consequences for failure to do so.
     
  3. At 27:55:‘For an SDS to be valid, it must state whether or not the contractor would be a deemed employee for tax and National Insurance purposes if they were directly engaged by the client.’ 

    Wrong. The law (Income Tax (Earnings and Pensions) Act 2003, section 61NA(1)) is very prescriptive here, and requires an SDS to state ‘that the client has concluded that the condition in 61M(1)(d) is met in the case of an engagement’ (or not met, as the case may be). 

    There is an equivalent for National Insurance. The condition referred to is that ‘if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client’.  This is only one component in making someone a deemed employee.  This matters because one can expect agencies who are under investigation by HMRC to look for procedural reasons to pass any bills back to their clients, and saying that an SDS is not valid ought to be a highly effective way of doing that.
     
  4. At 29:54:‘If the SDS states that the off-payroll working rules don’t apply there is no deemed employment and payments should be made to the PSC gross. 

    Wrong. This does not follow – the client might have come to the wrong conclusion in preparing the SDS.
     
  5. At 30:10:‘The legislation requires clients to have a status disagreement process in place to deal with SDS disputes.’ 

    Misleading. There is no requirement to have a process in place, merely to consider the worker’s representations when there is a dispute and decide again, which may never happen, or happen very rarely. This can be done ‘ad hoc,’ and bearing in mind the arcane nature of the disputes that are likely to arise that may well be the best way of dealing with things.
     
  6. At 39:47: The slide says at this point that the agency ‘Keeps £200 fee’. 

    Omits important information. This £200 fee includes the employer’s National Insurance that the agency has to pay, which will come to more than half of it (£113 in this example). The [HMRC] speaker does say at 40:05 that the agency will need to pay any ‘secondary National Insurance liabilities’, but most agencies will not be familiar with the ‘secondary’ part of the terminology and are therefore likely to fail to pick this up.
  7. I have seen that the deemed employer can charge the Employer’s NI back to the PSC - is this correct please? HMRC Answer: Employer’s NIC is the responsibility of the deemed employer rather than the contractor. 

    Omits important information. For the deemed employer to charge employer’s NICs back to the PSC would in most circumstances be illegal.
     
  8. If a client takes reasonable care in an SDS but gets the answer wrong, what are the consequences for the chain? HMRC Answer: If a client is not already the deemed employer, and has taken reasonable care and fulfilled its other duties (such as issuing the SDS), the responsibility for deducting tax and NICs and paying these to HMRC will not rest with it. This is the case even if it turns out that the client got the decision wrong

    Omits something important. One of the consequences down the chain is that the fee-payer (usually the agency) will have to pay the Employer’s National Insurance.
     
  9. At 39:30:‘The client therefore pays the agency £1,400, which includes the £1,000 weekly rate, plus the £200 VAT and the £200 fees.’ 

    Wrong. This one is a shocker coming from HMRC. In the example that they give, the agency’s fees would be subject to 20% VAT as well, so the client would pay the agency £1,440.
     
  10. In your Deemed Employment - examples 2 & 3 the offshore agency’s margin is being subject to PAYE, not just the payment the contractor is entitled to. Is that correct?  HMRC Answer: The agencies margin would not be subject to PAYE/NIC and would be removed when calculating the chain payment.  We will check the examples so thank you for pointing this out. 

    Wrong. In these circumstances the agency’s margin is subject to PAYE and NIC deductions.
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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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