HMRC's written evidence to Lords' IR35 inquiry ‘tantamount to fiction’

HMRC’s response to a committee of Lords probing the new IR35 rules has been likened to “fiction”.

Kate Cottrell, a former tax official, made the comparison to ContractorUK after reading the department’s 14-page submission to the off-payroll inquiry by the Lords’ Finance Bill Sub-Committee.

"Anyone who doesn’t know the chaos the April rules created should read all the submissions except for HMRC’s -- to understand the real impact."

'Fiction'

She continued: “Absolutely everyone else has a different experience to HMRC. But based on their past report, I have every confidence that the committee will soon sort the reality from this fiction.”

The Bauer & Cottrell co-founder is not the only status expert resorting to literary terms to try convey how ‘make-believe’ HMRC’s submission will appear to many.

“HMRC’s submission doesn’t tell the full story of IR35 reform,” confirms Qdos CEO Seb Maley. “The government [agency instead] paints a picture that suits its own narrative”.

'Easy, reasonable to apply'

In its written evidence to the Lords, who yesterday took quite different submissions from IPSE, FCSA and LITRG, HMRC says most clients find operating the new IR35 rules “easy”.

The majority of outfits also find the rules “reasonable to apply,” claims HMRC, at odds with the three public bodies having to pay £135million for getting their IR35 decisions wrong.

Elsewhere, the Revenue says when it “recognised” contractors “may be changing the way they work” due to IR35, it became “pro-active” to “raise awareness…among contractors.”

'Awareness-raising'

But in January 2020, HMRC produced an off-payroll ‘factsheet’ for PSCs only to not send it to any PSCs until two weeks later, and only after it was slammed for not even uploading it to its own website.

Then in its written evidence to peers, HMRC talks of “awareness raising” via its webinars on IR35 – yet its March 2021 webinar, which contained 25 alleged mistakes, is not mentioned.

And it is omissions which bother former tax inspector Ms Cottrell, just as much as what the Revenue does tell the peers.

'Too difficult elicits 'too early''

In fact, the 14 pages show HMRC not fully answering the Lords’ questions on five separate occasions, each time claiming it is “too early” in the April rules’ lifetime, the IR35 adviser points out.

“It seems that for the too difficult questions, HMRC states it is ‘too soon’ to evaluate,” she says.

“Then it’s typically followed by a ‘but,’ to quote either what a wonderful job they have done or from the wholly unreliable research they did following the public sector implementation.

“HMRC also repeats its usual IR35 mantras, including that most hirers find the rules ‘easy and reasonable to apply.’ Well, tell that to all those public bodies fined millions [for erring].”

'It's not too early, not by any stretch'

In its submission to peers, HMRC’s reasoning for it being ‘too early’ to comment in five areas is that reform research which it vowed to commission by October is “not yet complete.”

IR35 contract reviewer Mr Maley believes it sounds like an excuse. “The tax office says it’s too early to assess the impact of the changes…[but] it’s not too early, [not by any stretch].

“While more firms are getting to grips with reform, the fact of the matter is that it's created challenges and resulted in contractors being forced onto the payroll,” he said.

'Precisely what HMRC wants'

Reflecting on “behavioural effects” of reform (Q6), HMRC tells the peers: “[Our department] recognises and expects that, following the off-payroll reforms, some contractors will have moved into permanent roles, or onto the payroll of an agency or umbrella company.”

The significance of the admission by HMRC is not lost on Graham Webber, of tax dispute advisory WTT Consulting.

“Contractors being ‘forced’ onto the payroll… is precisely the outcome HMRC wants,” he posted yesterday. “All other considerations are secondary.”

'Administrative burden higher than HMRC forecasted'

For PSCs and medium or large commercial organisations, one new consideration is the new off-payroll rules being more onerous than HMRC originally estimated.

Outlining the “administrative burden”, the taxman says he has revised the one-off hit upwards from £14.4m to £19.7m, for both parties, explaining -- without an apology:

“Key drivers for the changes in estimates were assumptions on the use of tax agents by contractors (lower than originally estimated) and, for engagers, the time and cost of training internal staff and the time taken to check employment status (all higher than original estimates).”

'Here we go again'

Barring the new figures, the department’s submission is being characterised as the ‘same old-same old.’

Declining to be named, one adviser to limited companies said: “Reading HMRC effectively say what a sterling job they’ve done, especially with CEST apparently, while they continue to list down what we already know, like the remit of the new umbrella enforcement body and the existing dispute resolution process, is all just another case of ‘here we go again.’”

Taking to LinkedIn, a programme and project management specialist agreed: “Here we go again,” he echoed. “Until the truth is exposed -- rather than HMRC’s ‘truth’ nothing is going to change. Let’s hope the Lords remain open-minded.”