Inside IR35 contractors face a ‘dangerous game’ of ‘HMRC fodder’ if they go outside from April 6th 2023

HMRC should commit to not using a client’s ‘inside IR35’ determination against a contractor who self-declares ‘outside IR35’ after April 2023.

So recommends Chris James of Workwell, because how a PSC was “treated” in the past should not colour IR35 status in the future.

And, he adds, it ‘should not trigger an HMRC IR35 enquiry.’

'HMRC needs to make a similar commitment'

A director of limited company tax solutions, Mr James observes that HMRC gave a similar commitment to the one he now wants to see on the eve of the private sector off-payroll rules.

Save for criminal behaviour, HMRC “committed” in Feb. 2021 to not use details “acquired” from IR35 reform to open a new enquiry into returns for tax years before 2021 to 2022.

“HMRC now needs to make a similar commitment to contractors who in future assess themselves as outside, when their supply chain [assessed them as inside]”, Mr James says.

“HMRC should confirm this explicitly. It cannot be fair to draw conclusions about status from actions derived from a piece of legislation that the government has decided to repeal.”

'Dangerous game'

Yesterday, HMRC was unable to respond before going to press, but a spokesperson said the department was “looking into” the issue, when asked for the commitment by ContractorUK.

But formerly of the tax department, Kate Cottrell indicates Mr James might be disappointed.

“An IR35 enquiry looks at the whole picture at least four years back, so it is inevitable that history will come into it especially if the PSC is at the same client,” warns the ex-inspector.

“The ‘whole picture’ includes any SDS and if produced by the client as inside IR35, [it means] going outside IR35 will be a dangerous game, unless the outside-evidence stacks up.”

'Are you on a contract that was previously inside IR35?'

As to what the Bauer & Cottrell co-founder’s ‘dangerous game’ might look like for contractors, in practice, Graham Webber, a director of tax dispute advisory spelled it out:

“From April 6th 2023, [if] you decide that the same [‘inside’] role is ‘outside,’ I suspect that moves you several places up the list of taxpayers HMRC would like to speak with.”

And if an inspector does call after April 6th 2023, limited company contractors should be in no doubt as to the first question they will face, according to a change manager.

The manager posted: “HMRC’s first question in future [IR35 investigations] will be, ‘Are you in a contract that was previously deemed inside IR35 by the client?’”  


Elsewhere on social media on the same issue, a payroll manager claimed contractors with ‘inside’ determinations won’t be able to simply “negotiate” to become ‘outside’ on 06.04.23.

ContractorUK showed the claims a to tax lawyer, who said contractors would have to prove ‘reasonable care’ had not been taken to stand a chance of negotiating successfully.

“A business decision not to work with PSCs anymore [does not constitute non-compliant blanketing]” advised the lawyer, Rebecca Seeley Harris.

“So, contractors should be warned that moving from on-payroll to off-payroll under the same contract could indeed be problematic.”

'Fodder for HMRC'

Founder of client-side IR35 advisory ReLegal Consulting, Ms Seeley Harris also said she agrees the Revenue should step in.

"What HMRC now needs to make clear is whether a prior SDS of an on-payroll worker will impact the assessment of the worker should they go off-payroll under the same contract. 

“Also for post-06/04/23, an amnesty on previous assessments unless there is criminal or fraudulent behaviour should apply, much as there was coming into the off-payroll rules.”

Seeley Harris added that without an amnesty, PSCs should be “very wary” of self- declaring ‘outside’ if they were previously ‘inside,’ as such workers will be “fodder” for HMRC.


But it is not like HMRC has only one trough, indicates Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed.  

“We must…be wary of other legislation that could be used to clampdown on freelancers,” Mr Chamberlain warns.

“This could come in the form of Managed Service Company (MSC) rules – where HMRC can deem an accountancy services provider as a MSC provider and thereby deem almost all contractors working with these accountants as liable for PAYE Income Tax and National Insurance contributions.”

'HMRC will double down'

Chris Mattingly, WTT’s IR35 adviser echoed: “HMRC has a wide range of anti-avoidance measures at their disposal.

“So we can expect to see more enquiries and cases around Managed Service Company legislation [and] the Criminal Finances Act 2017.

“Make no mistake, HMRC will double down on their efforts to ensure compliance.”

Mattingly isn’t alone in the suggestion that the tax authority’s officials, from inspectors to top brass, might not exactly share new chancellor’s Kwasi Kwarteng’s stance on IR35 reform.

Or the stance of the new prime minister, who criticised the 2021 rules before Mr Kwarteng’s Mini-Budget promised to repeal and replace them from April 6th 2023 with IR35 (2000).   

'Expect HMRC to be even more desperate'

“HMRC are still going [to go] after Chapter 8 [ITEPA 2003],” reflects Tax Networks boss Chris Leslie, a former head of investigations for the Revenue.

“They don’t have sufficient resources to do a review of each individual case. [But] I would also say that they will be even more desperate to demonstrate in the courts the Chapter 8 cases.”

A marketing expert on LinkedIn says the reverse is true, too: “I cannot see HMRC bringing any prosecutions between now and April 6th 2023 for a rule which is being repealed.”

'Anti-forestalling measures'

But HMRC will bring in “anti-forestalling measures,” with the effect that any work undertaken prior to April 6th 2023 but invoiced and paid after that date, will still be subject to the 2021 off-payroll rules and status determinations, advises WTT.

Asked for any practical tips that contractors with concerns can follow, Bauer & Cottrell said that, in one word, it is probably “evidence.”

“Contractors should keep everything sent to them from the start of the rules and maybe seek a second opinion from a genuine status expert before doing anything. 

“Remember too, HMRC committed to stand by CEST results providing they agree with what was input. So if you’re a contractor with a client-completed CEST output that is inside IR35, I expect they will attempt to stand by it irrespective of if it was right or wrong.”

'Awful lot of information at HMRC's fingertips'

The IR35 advisory’s Ms Cottrell continued in a statement to ContractorUK: “But also don’t forget the Intermediaries reporting requirements.

“Thanks to those, HMRC has an awful lot of information at its fingertips. My message to contractors is hopefully loud and clear – wait for more details of the repeal, gather all the evidence and then get some professional advice in order to make [any] change [to outside IR35] without fear or risk.”

EY partner Sue Robinson is waiting on those all-important details from HMRC and potentially HM Treasury as well.

'More questions than answers'

An employment tax specialist, Robinson hinted the simple-sounding return to an old framework known by many may, paradoxically “leave us with more questions than answers.”

“What happens if a contract with a requirement to withhold PAYE and NIC extends beyond 6th April 2023?,” she asked online, outlining the first of a few difficult-to-answer questions.

“How should contractor disputes be handled between now and the repeal date, if contractors are able to change the status determination afterwards?

“[And perhaps most affecting of all if you’re a contractor], will HMRC seek to make use of the evidence gathered by end-clients since the [2017/21] reforms were introduced, such as [by looking at] Status Determination Statements and Real-Time Information, to enforce IR35 compliance from PSCs post 6th April?”


Law firm Osborne Clarke sounds like it might have some answers.

“Status determinations issued…in the period [running up] to April [2023] may have a ‘hangover’ effect for some time after the legislation is repealed.

“[So] in the year or two after the repeal, HMRC may have an easier job taking action against many contractors, because end-users will have placed on the record -- in their status determination statements under the 2021 regime, their view as to whether a particular role is or is not really self-employed.”

Writing in a briefing following Friday’s Mini-Budget, the firm continued: “It may [therefore] be difficult for contractors in such roles to mount effective defences if they receive IR35 assessments for the period after April 2023, and we know that many contractors will be worried about that potential liability hanging over them.”

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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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