Many in the contractor industry appear to be disappointed in HMRC’s response to the complications surrounding IR35 legislation. Industry feedback so far has brought to light various issues impacting contractors from the efficiency of HMRC’s customer service to their response and management of IR35 legislation. As a whole, many feel as though there is still too much ambiguity and uncertainty surrounding the legislation. The complexity and lack of clarity has left many feeling less than confident in the idea of extending IR35 to the private sector.
HMRC unable to cope with growing demand
Recent figures published by HMRC revealed that of the 43 million calls made to them in the last year, 10% of these were left unanswered, while 14% of answered calls took up to 14 minutes to be attended to. These figures alone are disappointing but the problems are only set to worsen following HMRC’s proposal that they are still considering extending the IR35 legislation to the private sector. Meg Hillier MP asserted, “hanging on the phone during the day is difficult to do for a lot of people […] [HMRC] is collecting tax on hard-earned money and it needs to make it easier for people to play by the rules.”
Contractor’s concerned HMRC doesn’t truly comprehend the complexity of IR35 legislation
Industry experts argue that IR35 alone is too convoluted and confusing for people to adhere to, with or without an efficient customer service. The latest appeals won by contractors, MDCM Ltd and Jensal Software Ltd have reaffirmed many beliefs that HMRC itself does not truly understand how the legislation works. Many scathingly criticise the tax-man arguing that if a governmental department with all its resources and knowledge cannot correctly determine a contractor’s IR35 status, then how can they expect the everyday contractor or PSC to be able to do so. The Freelancer Contractor Services Association (FCSA) remarked, “HMRC’s track record on IR35 is dismal [and] it’s unthinkable that it can expect end-hirers to take responsibility for IR35 when it is proven that they cannot implement it properly themselves.”
Scepticism towards HMRC-commissioned studies
HMRC recently published the “Off-payroll working in the private sector – consultation document” and a “Consultation on off-payroll working in the private sector – factsheet.” However, following these documents many within the contractor industry are still incredulous and unconvinced of the effectiveness of IR35 implementation and HMRC’s own understanding of it. Within the document, HMRC claims to have acknowledged problems with the legislation but suggests these have now mostly been fixed. The FCSA very bluntly disputed, “We disagree that public sector compliance has improved since the reforms were implemented”. This opinion is in part due to a key figure in the study that claims IR35 compliance is up because 58,000 extra public sector workers have paid income tax/NICs since April. But the FCSA argues that “all that we have seen is an increase in numbers on-payroll, which is not substantive proof that they should be there at all.” Julia Kermode, FCSA chief executive, added that these additional people appearing on the payroll have likely only emerged due to “inaccurate blanket or role-based decisions”.
Blanket IR35 decision-making is occurring despite HMRC claims
HMRC’s study also claims to have discovered that 93% of public sector bodies test case-by-case. However, an 11-month investigation released by Contractor Calculator in early April revealed that the Check Employment Status for Tax (CEST) tool provided by HMRC actually determined 54% of those assessed were outside of IR35. Nonetheless, many public sector contractors are still being treated and taxed, as inside IR35 due to the blanket decision by PSBs. Consequently, there may be grounds to appeal against this wrongful overtaxing.
To further unsettle the industry, approximately 15% of assessments made by the CEST tool determined a contractor’s status as inconclusive, leaving many unsure about the next step to take. HMRC has conceded that there is no conclusive evidence to prove the CEST tool’s accuracy. This admission suggests that many hirers would rather adopt a blanket ‘inside IR35’ decision than risk placing their trust in CEST.
Additionally, reaffirmed by a committee meeting regarding the BBC pay scandal, it was revealed that 97% of BBC broadcasters who had used the CEST tool were given an incorrect assessment. Consequently elucidating that many contractors will have been forced into false employment and been subject to excessive taxation due to the unreliability and inaccuracy of CEST. The BBC isn’t the only organisation to be affected. The uncertainty caused by IR35 is putting strain on the NHS and social care services as the hiring of temporary staff have been refused due to the flaws of the CEST tool.
A very different reality
HMRC, and the study they commissioned, paint a very different picture to the reality many are seeing and experiencing. The department is placing huge pressure on public authorities to determine the IR35 status of their employees. However the CEST tool provided by them is not fit for purpose and the department itself is still making mistakes, as seen with its recent losses against contractor appeals.
Thus, it is the Government’s responsibility to address these shortcomings, review the CEST tool urgently and be understanding of the complexity of the legislation. Furthermore, until the law is clearer, and both HMRC and PSBs are able to make accurate IR35 decisions on a large scale, the contractor industry has called for the Government to postpone plans to extend IR35 to the private sector.
How can we help?
After the first 3 months of the IR35 legislation being introduced Cloud9 Umbrella ran a survey to assess how recruiters and agencies felt about the changes. 80% of contractors working with Cloud9 found the information provided to them to be more clear, concise and insightful about the legislation changes than what they received from other parties. 100% of agencies working with Cloud9 believed that staff went above and beyond expected to provide a smooth service during the transition period.
K&B Accountancy Group and our partner company Cloud9 Umbrella are continuing the good work, supporting and guiding clients with honest and efficient advice. The teams are more than happy to help with any queries, concerns or uncertainties clients may have. All you need to do is pick up the phone or email us and one of our experts will be happy to help.
For K&B Accountancy Group call 0207 078 0211 or email [email protected] and our team will be happy to answer any of your questions. If you work through a PSC, we offer an Essential IR35 package, which specifically includes advising, reviews and protection against IR35 legislation with IR35 experts Bauer & Cottrell. Switch to us for FREE without the need to pay for any ‘catch up’ or retrospective accountancy fees for the previous year’s accounts and corporation tax return*.
Working in the public sector, think you may be caught inside of IR35 or simply do not want the trouble of running your own limited company? Cloud9 Umbrella can support you with their straightforward, honest and 100% compliant payroll service. Click here to find out more about how they can look after the administrative burden for you. Equally, you can call them on 0207 078 0212 or email [email protected]