Taxman's ‘too early to say’ claim on IR35 riles contractor experts

The taxman repeatedly saying it is too early to answer questions on the off-payroll rules of April 2021 is sticking in the craw of private sector IR35 experts the most.

Used five times in its written evidence to the Lords off-payroll inquiry, HMRC’s ‘too early’ statement was initially criticised for being seen as a way for it to duck hard questions.

Since then, the inquiry has received almost 40 written submissions -- from individuals, experts and organisations, and seven advisers met the peers face-to-face to give evidence.

'Plenty of evidence that it's not too soon'

Yet HMRC’s ‘too early’ claim from November 29th continues to jar.

“HMRC’s written evidence seems to suggest it’s too soon to make a judgement on the impact of the reforms,” reflects IR35 Navigator CEO Chris Mattingly.

“Yet there is plenty of evidence out there to say otherwise. We need look no further than the chronic HGV driver shortage reported over the summer.

“While Brexit and Covid played its part, the IR35 reforms were widely reported as one of the key reasons why drivers said they were no longer willing to engage.”

'Not too soon to investigate, though'

Nicola Hayman, legal manager at Kingsbridge called HMRC’s written evidence to the inquiry – where ‘too early’ is deployed five times by the tax office – “disappointing.”

One of the almost 40 written contributors to the peers’ inquiry, the IR35 status review firm told ContractorUK: “Throughout their submission [HMRC] continue to use the excuse of it being ‘too soon’ to see any impact on the sector – yet they didn’t feel it was too soon to start sending out compliance letters to those in the oil and gas industry, and the banking and finance sectors.”

In its oral evidence to the Lords, the Freelancer & Contractor Services Association confirmed: “There’s been a worrying development over the last few weeks.

“We’re seeing a number of engagers receiving letters…from HMRC saying ‘we’re now going to investigate the outcomes of your status determination results.’”

'First steps of HMRC enforcement'

The FCSA’s Phil Pluck explained that he regards the letters as worrisome not because it’s ‘too early’ to investigate (which it presumably should be if it’s too early to even answer questions about how the rules operate), but because HMRC’s wording implies CEST to be a legal requirement.

Stuart Marquis of JSA Group echoed in an online alert on Friday: “HMRC have recently taken their first steps towards enforcement activity in relation to the off-payroll reforms to IR35.

“They’ve been sending out ‘request for information’ letters to end-clients in a whole host of different industry sectors. HMRC want to know about the ‘systems and processes’ that clients are using to produce determinations.”

'Noise'

He added that it seems HMRC wants to see evidence of the ‘reasonable care’ component that sits behind and validates the IR35 status determinations that are produced.

Andrew Webster, compliance adviser at Workr Group has seen the letters too.

“The most noise surrounds question 2: ‘How your processes ensure compliance throughout the organisation, demonstrating how you ensure consistency where decision making is not a central function.’” 

'Staying on HMRC's right side'

Addressing engagers directly, Mr Webster continued in a post: “What you might not have done is check your processes and policies to ensure they’re still fit for purpose, post-6th April 2021.

“Auditing of implemented processes, policies and indeed technology to support IR35 BAU…[can] show you’re committed to staying on the right side of HMRC.”

Another legal expert, Kingsbridge’s Ms Hayman points out that in its evidence, the Revenue touches on contractors having had to change the way they provide services.

“[HMRC is] implying that the contractor was part of that decision making process [but] what they fail to acknowledge is that in most situations, these decisions would not have been made by the contractor but the organisation they are working for.”

'Significant and damaging impact is evident now'

But the decision-making process and the changes to services provision are among the maturing effects of the reform that the legal manager implied makes ‘too early’ look flimsy -- as a reason from HMRC not to answer the Lords’ questions.

“Eight months have passed [since the rules were introduced in April], and the significant and damaging impact couldn’t be more evident,” Ms Hayman told ContractorUK.

“We continue to see the harmful effects of the reform,  [notably] businesses refusing to engage with PSCs and therefore pushing them on to the payroll or via an umbrella company. This approach has come at a significant cost. Where a PSC is needlessly pushed down this route in most situations it results in additional and avoidable costs. More importantly [for UK plc], it reduces access to some of the best contracting talent out there inevitably leading to delayed and cancelled projects.”