IR35 specialist warns of more HMRC mistakes to come

An IR35 specialist has issued an ominous warning that mistakes by HMRC over the new off-payroll rules are bound to reoccur.

“It’s not the first nor I doubt will it be the last time that the taxman makes mistakes when it comes to IR35,” said the specialist, Seb Maley, referring to the Revenue’s ‘25-error’ webinar.

Ahead of enforcement of the rules in just eight days’ time, the CEO of Qdos also told ContractorUK: “It’s quite right errors are pointed out. If the shoe were on the other foot, HMRC would have a field day.”

'Huge mismatch'

But sounding concerned for contractors now, Mr Maley posted that some clients are using CEST to determine IR35 status ahead of April 6th, even though the tool fails to ask more than 100 questions that HMRC would.

CEST asks up to 30 questions before delivering an answer regarding a contractor’s status. In contrast, when policing IR35 compliance HMRC can ask more than four times that amount - 134 in a current case we’re working on.

“Yes, that’s right, 134 questions scrutinising a contractor’s working practices despite HMRC claiming just 30 questions is enough to determine it via CEST. It’s a huge mismatch”.

'Can't use a limited company from this Thursday'

But is the gulf between fact and the fiction of a service provider seemingly try to cash-in on the April 6th reforms that is troubling another adviser to contractors.

The adviser, Carolyn Walsh said: “An email targeting contractors wrongly states, ‘On April 1st, contractors will no longer be able to use their own Ltd Company to bill clients, unless:
 
“'They are in possession of an authorised Status Determination Certificate showing they are outside of IR35, or they operate PAYE on the entire gross contract value.'”

'Get an 83% take-home, even if inside IR35'

Obtained by ContractorUK, the email concludes: “Talk to me about how we can get you 83% returns, safe and secure, inside or outside of IR35.”

Formerly of the Revenue but now owner at CWC Accounting Solutions, Walsh said it was “disheartening” to see attempts to mislead, especially as the hood-winked will pay severely.

“There will be people who will be taken in by the near 90% take-home pay claim.

“They’ll believe that if they've been sold a pup, it's the 'puppy breeder' who cops the tax debt," she said. "But that's so not true, and so many people have first-hand experience of that.”

'Two new research-led papers from HMRC'

To try to smooth implementation of the April 6th IR35 reforms, the Revenue has finally released two research papers, one relating to the education sector and the other to agencies.

“HMRC[‘s]….two new reports on Tax Day for off-payroll working…are both research-led papers”, reflected the founder of ReLegal Consulting Rebecca Seeley Harris.

“They explore the effects of the 2017 [IR35] reforms on the public sector and the likely effects of the 2021 reforms on employment agencies.”

'Nothing new'

However an unimpressed Graham Webber, the tax director at WTT Consulting said: “‘Research-led’?

“[It’s] more likely those tendering for the job were told the answer and told to find data to support that answer.”

Ryan Dawson of Kingsbridge Group is similarly underwhelmed. “They surveyed just 34 agencies in gathering information despite the fact that there are a total of 39,232 recruitment agencies”.

“[Maybe that small research base explains why] most of the feedback provided by the participants here is nothing new”.

'Why bother?'

The boss of a technical staff recruitment agency echoed: “It's hard to draw conclusions from either report where the data source is so limited  -- and in the case of the public sector report, specific to the education sector.”

The agency boss added: “Just 34 recruitment agencies interviewed… and two of those didn't even have any PSC contractors on their books. So why bother with them at all?”

Turning his attention not to agencies, but to the primary IR35 status decision-makers from April 6th, end-users , is WTT Consulting’s Tom Wallace.

'Not quite as simple as that'

“With the IR35 reforms just days away, it is worth reminding end clients that they are exempt if they are a ‘small company.’ “And the definition of small company is if they meet any two of the following -- turnover below £10.2m; or balance sheet below £5.1m; or 50 employees or less.

“However, it is not quite as simple as that,” cautioned Mr Wallace, continuing to address end-users in an online advisory.

“When deciding if you are a small company you need to consider any ‘associates’ and include them when looking at the above.

“Also, if you are part of a group, then it is the ultimate parent company you need to look at when deciding if you meet the definition. Therefore, do not assume that you are a Small Company as you may not be.”

'It's just penalties which HMRC won't charge'

In a separate post on LinkedIn, the ex-tax-inspector poured cold water on the idea that HMRC’s promise of a ‘soft-landing’ for the new IR35 rules would amount to much of a reprieve.

Responding to a workplace adviser who said the 12-month commitment gave both "reassurance" and "time" for organisations to adapt, Mr Wallace clarified his former employer’s policy:

“It’s just the penalties that they will not charge. The tax will still be payable," he said. "And this will be quite sizable in even a short period of time.”

'Perils of inside IR35 contracts'

Also last week in an update, albeit squarely aimed at his fellow contractors, a contractor said he had been pointing out three overlooked financial “perils of inside IR35” working.

First, check if the client will be providing “all” equipment necessary to do the job, which previously the contractor’s PSC supplied and covered with busines insurance.

Second, he said, get the end-user to apportion travel costs into the contractor’s new inside-IR35 rate, because a ‘meeting half-way across the country will be no longer be tax-deductible.’

Third, and also to avoid making a “total loss”, contractors must ask the end-user to factor-in other costs such as those arising from hotels, food or online tools, meaning a “rethink” about how they work could be vital for those contractors whose end-users refuse to price-in such expenditure.

'The finer details could make all the difference'

At Qdos, Mr Maley said: “Such is the complexity of IR35 that the finer details are fundamental and could prove to be the difference between operating compliantly or non-compliantly.”

Still mindful of the  Revenue’s ‘25-error’ webinar, he added; “HMRC should know this [the importance of the finer details] better than anyone. But the fact of the matter is they don’t, which is why I advise extreme caution to businesses receiving IR35 support from the taxman. This is, after all, the same HMRC which still insist that CEST is fit for purpose.”

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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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