HMRC briefing note on IR35 offers 'little comfort to concerned self-employed people'

HM Revenue and Customs (HMRC) IR35 briefing note that was published on the 22nd October offers ‘little comfort to concerned self-employed people’ in the UK.

Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self Employed (IPSE), said:

This briefing will be cold comfort to the millions of self-employed who are worried about the looming disaster for the sector when the changes to IR35 come into force next April.

The Government’s new guidance claims that legitimately self-employed people ‘will feel little impact’. Tell this to the thousands of contractors working for Barclays, Lloyds, HSBC and Tesco Bank who have already been told they must move into umbrella companies, go PAYE or cease contracting for these organisations altogether. There will likely be more such damaging decisions as April approaches.

The HMRC has also announced it will be making changes to its Check Employment Status for Tax (CEST) tool in preparation for the arrival of IR35. In response to this, Mr Chamberlain asked: “You have to wonder if HMRC is so confident in the CEST tool, why is it changing it now?”

Mr Chamberlain said;

It is also disappointing that HMRC is still stubbornly standing by the CEST tool, which is the source of so many IR35 woes. HMRC has lost the vast majority of IR35 tribunal cases since 2017 – based on CEST tool rulings.

The truth is the CEST tool is extremely unreliable. In fact, HMRC admits that in 15 per cent of cases it cannot even provide a determination. The tool comes out with incorrect determinations – or does not produce a judgement at all – because it does not account for mutuality of obligation between a self-employed person and their client.

Others have backed IPSE’s opinion saying that HMRC’s guidance falls short. Seb Maley, CEO of Qdos, an insurance and tax advice for the self-employed firm said:

The latest guidance from HMRC relating to next year’s IR35 reform is lightweight and fails to address our concerns regarding CEST or particular aspects of the incoming reform, such as the specific rules around how a contractor can overturn an unfair IR35 decision.

With this in mind, private sector firms that rely on contractors and want to continue benefitting from engaging these workers compliantly outside IR35 would be wise to seek specialist advice.

Susan Ball, employer solutions tax partner at RSM, a provider of audit, tax and consulting services believes that HMRC publishing these rules is a proactive step yet it only provides ‘limited’ comfort to contractors.

Ms Ball said:

It is encouraging in that HMRC is being proactive in seeking to engage with affected businesses to help them understand and implement the new rules correctly. However, we remain concerned that HMRC will not necessarily know about all the businesses in scope, and there is a risk that some will fall through the gaps.

On October 16th, Nigel Morris, employment director at MHA MacIntyre Hudson chartered accountants, tax and business advisers firm asked does the “HMRC believes legitimate Personal Service Company (PSC) engagements are relatively rare?”

He asked this question as Barclays Bank and Lloyds Banking Group put an end to contractors, with similar issues arising when the same rules were applied to the public sector.