IR35: Our not-to-worry taxman is cause for us all to have serious concerns about HMRC

An astute Meg Hillier MP is among those to have noticed a suspicious trend from HM Revenue & Customs, when her Public Accounts Committee last month quizzed three of its representatives about lessons from implementing IR35 reform.

Turning specifically to Jim Harra, the chief executive of HMRC, a clearly unimpressed Ms Hillier said: “Every time you come up with a figure, you say, ‘but the majority disagreed.’”

She is referring to what I’ve come to know as the ‘not-to-worry’ taxman, writes former Revenue inspector Kate Cottrell of IR35 specialists Bauer & Cottrell.

Introducing the not-to-worry taxman…

And unfortunately for those of us who want straight, direct answers from HMRC, the not-to-worry taxman made constant appearances at the PAC session, the culmination of which comes in the Easter with a report from the committee on its findings.

Before I introduce you further to the not-to-worry taxman, it should be acknowledged that numerous point or claims made by HMRC in the PAC session simply do not stand up to scrutiny.

Often, that’s because the Revenue has failed to realise that as the old adage goes, ‘Assumption is the Mother of all Mistakes.’ And for HMRC, a generous dose of assumption seems to spawn more mistakes.


HMRC assumes that because CEST has notched up 1.2million usages, it shows that folk are doing case-by-case determinations – not blanketing.

Sorry, but to argue as such is rubbish. The fact that HMRC cannot identify who used CEST and/or how many times, shows that this assumption is based upon pure fantasy.

● Blanket bans

HMRC said in the PAC session that it found only one case in the public sector of a blanket ban. So the Revenue assumes there are no other case of blanketing, even though its own ‘research’ in this area was extremely limited.

● The figures

The PAC session revealed that HMRC does not yet have reliable figures for anything.

Figures for 2019/20 are not yet available, so they cannot see how much more they “may” have brought in as a result of IR35 reform in April 2021. And they cannot actually identify IR35 being the cause of increased revenue.

● The administrative burden of IR35 reform

HMRC’s estimated costs of IR35 reform to organisations were based upon the ‘fact’ that contractors did not have to pay for IR35 assessments. But just before the end of the PAC session, HMRC admitted that actually 90% of contractors did not pay for assessments anyway – to which Ms Hillier responded, “Mr Harra hits the real world.” So we see again that from the outset, all has been based upon knowingly incorrect assumptions. It provided a good laugh in the session, but frankly, that’s infuriating.

●HMRC collects the wrong amount of tax from the IR35-caught

We know from the National Audit Office report on IR35 reform that HMRC collects the wrong amount of tax. Yes, they even as good as admit it! But as the engagers do not have sufficient identity details then it’s just totally impossible for HMRC to write to contractors to say, “You may be due a refund.” But the Revenue says it would do so if the ID details were known. Has anyone had a letter like that? No I didn’t think so. Not to worry then.

Standing back to paint a picture

As it always does, the Public Accounts Committee asked some very probing questions of HMRC – this time to HMRC’s Jim Harra; Nicole Newbury and Pete Downing.

But the result of the committee trying to glean the lessons learned by HMRC from the public sector is less impressive.

Why? Well, HMRC blames the public sector for owing them £263million for not understanding their contractual frameworks despite being given a “masterclass” on IR35 from HMRC.

But ‘not to worry,’ the taxman again effectively said, as he may be able to get it back from contractors!

Then, as outlined above, the committee heard that none of HMRC’s published, underlying assumptions of costs are correct. But not to worry as it’s early days (the taxman as good as said), and HMRC doesn’t have the figures yet. So again -- not to worry.

HMRC losing (again) to Kaye Adams on IR35 would spell significant change

It was then submitted by HMRC to the PAC that if HMRC loses at the Court of Appeal in the case of Atholl House Productions (the Kaye Adams case), then HMRC may have to change its IR35 guidance for other taxpayers, particularly those with “portfolio-earning careers.”

But again not to worry -- HMRC all but said, as the tax authority isn’t concerned that ‘In Business On Your Own Account’ is extremely relevant to all status cases and they further hinted, it can be ignored when testing IR35! So not to worry about ‘IBOYOA.’ (For the avoidance of doubt, I couldn’t disagree more, as the Adrian Chiles case shows.)

And yes, IR35-wronged contractors in the public sector may be entitled to refunds. But guess what? Not to worry, because the Revenue cannot identify them. 

Criticism, aggravation, and sadness

Similarly, HMRC received “a little bit of criticism” on the Adrian Chiles case – but again, not to worry because it was only “a little bit”.  

But perhaps more, stauncher criticism is warranted of HMRC’s grasp of IR35 overall, because just 15,000 PSCs have tax deducted each month, meaning just 15,000 contractors a month are inside IR35 under the new rules, in return for “a load of aggravation” -- as it was put to Mr Harra. A characterisation that he didn’t challenge.

Surely this figure must demonstrate quite clearly that the April 2021 off-payroll rules have had a tremendous impact on behaviours and bear no relation to all the HMRC assumptions previously made. 

But ‘not to worry’ – I can almost hear the taxman say. What is worrying, partly because it seems unchangeable, is that the whole IR35 regime is a total mess and disaster, much of the government’s own making. It’s also slightly sad, because so many of HMRC’s wrong assumptions and problems that it continually qualifies and thereby dismisses are, again and again, all the very same things that stakeholders have raised for many, many years. Oh well HMRC. Not to worry eh?

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Written by Kate Cottrell

Kate Cottrell from Bauer & Cottrell Limited - leading UK IR35 expert who has been contributing IR35 guidance, commentary and articles to ContractorUK for many years.
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