A contracting expert has today accused HMRC of misleading the Treasury on new IR35 reforms, the off-payroll rules currently under scrutiny, and explicitly called the tax office’s integrity into question.
Following the publication of fresh correspondence from the Treasury regarding how IR35 works, Dave Chaplin, CEO and founder of ContractorCalculator, claimed HMRC had misled chancellor Philip Hammond on mutuality of obligation (MOO) – a key aspect of law necessary to accurately assess employment status.
In a letter to environment secretary, Michael Gove, sent in response to a constituent’s concerns regarding the public sector IR35 reforms, and specifically HMRC’s Check Employment Status for Tax (CEST) tool, Hammond stated:
“Mutuality of obligation refers to any existing agreement where an individual provides services and receives payment for doing so – better understood as a contract existing between the two parties. CEST assumes as its starting point that a contract either exists or is being discussed.”
The same interpretation of MOO was also used by financial secretary to the Treasury, Mel Stride, in an almost identical letter to constituents, which contained more claims that echoed HMRC’s attempts to deflect criticisms of CEST.
Responding to the fresh correspondence, Chaplin said: “We doubt the chancellor or the financial secretary to the Treasury have any idea about what MOO is which is why they appear happy to trot out – albeit unwittingly – HMRC’s falsehoods regarding MOO and CEST.
“HMRC has been propagating its erroneous claims to public authorities and IR35 Forum members of late, but it’s a grave concern when these false claims are coming from the country’s key economic and fiscal decision makers. Questions must be asked.”
“The chancellor has reiterated HMRC’s supposition that MOO is present for all contractors. This assumption was built into CEST, meaning in excess of 750,000 CEST results will need to be re-examined, as will thousands of blanket decisions taken by the likes of the NHS.
“HMRC appears to have become the puppeteers of both the chancellor in one hand and the secretary to the Treasury in the other, issuing mistruths and denials to constituents to shore up their flawed position.”
At a select committee hearing on 20 March 2018, Leading QC Jolyon Maugham flagged up the same potential outcome.
“In two years’ time this committee is going to be looking at a different question, which is whether the BBC and the NHS were right to force everybody to be taxed as employees in circumstances where the case law has shown after the fact that very often those people were properly taxed as self-employed,” Maugham explained.
He added: “They [NHS and BBC] are saying everybody is an employee in circumstances where the law does not support that conclusion.”
Chaplin claimed that HMRC was now in a “precarious position”.
“It has misled thousands of taxpayers; its consultation process chooses to ignore research demonstrating its failures, and now it is trying to cover its tracks by misleading the chancellor.
Surely the chancellor cannot allow HMRC to get away with it? Public officials are required to abide by the Nolan Principles, which include objectivity and honesty, and HMRC is failing on both counts. We need a full inquiry before any further changes to IR35 are considered.”
Contradictions between the messages from HMRC and the Treasury follow repeated Freedom of Information requests by ContractorCalculator for HMRC to publish its legal position on MOO and explain why it was omitted from its CEST tool.
The recent Armitage Technical Design Services (ATDS) Ltd v HMRC tribunal appeared to further compromise HMRC’s position on MOO, as the judge rejected the taxman’s own interpretation.
Chaplin added: “England might be hoping that its World Cup campaign is devoid of red cards but I would like to show HMRC, CEST and the off-payroll reforms one big red card with no second chances.
“We will continue to shout and boo from the sidelines to expose HMRC for utter incompetence and waste of taxpayers’ money, not to mention the false claims it is pedalling to the government.”
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