Freelancers' Questions: What's an IR35 expert's view of the HMRC consultation?
Freelancer’s Question: I’ve read lots of replies to the IR35 reform consultation from trade bodies and lobbyists who have always been anti-IR35, but less from actual experts on IR35, i.e. those who defend freelance contractors from IR35 when HMRC investigates. What’s their take?
Expert’s Answer: The key points from our submission to the Off-Payroll Working in the Private Sector consultation are as follows:
- A proper evaluation of the success (or otherwise) of the impact of the rule changes in the public sector needs to be undertaken before any further changes are considered.
- Government ministers need to see for themselves the contrary evidence of the chaos created in the public sector that is continuing since the April 2017 reforms came in.
- The current Off-Payroll legislation needs to be redrafted to be effective.
- The CEST tool is not fit for purpose.
- Urgent action needs to be taken by HMRC to address the huge levels of tax avoidance and the various ‘solutions’ that have emerged since the rules changed.
- HMRC needs to make proper use of the tools available to it and change the way it goes about enforcing the current rules rather than putting extraordinary burdens on business to enable it to make its job easier.
- A fully costed impact assessment is required based on the facts.
- The private sector is already burdened with numerous laws and rules. With Brexit causing enormous uncertainty now, then to make changes on this scale at this stage is irresponsible.
In addition to point 6, we made a lot of comments regarding HMRC’s current modus operandi with regard to IR35 investigations. These ranged from HMRC picking on ‘high earners’ who are in fact more likely to be found outside IR35, through to using lower grade staff as ‘fact finders’ who ask numerous questions -- and then bat the case back to a status inspector who thinks of a few more questions to ask. This severely delays cases.
We had suggested a return to a risk-based approach, which worked well but HMRC seemed to simply drop this approach. We have now called for the right level of HMRC skills in deciding status and IR35 and said that they should see cases through to the tribunal themselves. Better targeting of cases by those with the skills to deal with them would make this proposed reform unnecessary.
Lastly, you may be interested to know that we did answer most of the consultation’s questions too (a total of 34 were posed). However, we don’t think the ‘other options’(Q32, Q33) suggested, such as securing supply chains and additional record-keeping, are workable models, bearing in mind that there are approximately five million-plus private sector companies, of which more than 90% are small businesses.
The expert was Kate Cottrell, co-founder of employment status and IR35 advisers Bauer & Cottrell.
20th August 2018