Does HMRC’s IR35 own goal mean it’s game over for team taxman?
The world cup might only be a matter of weeks away and teams have been preparing for kick-off for months in a bid to lift the trophy on the other side of the world. But there will be no such accolades being handed out to HMRC, which is set to score a spectacular own goal despite the yellow cards flagged up since the IR35 reforms came into effect last year.
HMRC’s Check Employment Status for Tax (CEST) tool is flawed, its shortcomings are now public knowledge and we have evidence to show that the tool has not been tested properly, omits fundamental areas of employment case law and does not align with IR35 law. HMRC also admits that it omits mutuality of obligation (MOO) a key IR35 factor because it assumes MOO to be present in all contractor engagements.
Despite exhaustive requests, HMRC has still not given us any reason behind such a flawed assumption and HMRC’s stance is simply untenable. So, when will HMRC admit it has got this one wrong?
Writing for Business Advice, Dave Chaplin, CEO and founder of ContractorCalculator, an online contracting authority that has been campaigning on behalf of contractors and freelancers to challenge the tax office on IR35 and its reforms, spells out HMRC’s options as he sees them.
Admit CEST is flawed
If HMRC wants to maintain any dignity and integrity it needs to hold up its hands and admit it is wrong. The backlash will be fierce. Admitting HMRC has got it wrong and that CEST is flawed essentially means admitting that any assessments are void.
It means they have spent enormous sums of money developing something that is a white elephant thousands of contractors will need to be reassessed which will undoubtedly give rise to costly appeals and tribunals for many who have been wrongly put on the payroll and paid too much tax.
The embarrassment and spiralling costs could see the public sector reforms being shown a red card given that CEST was the key player in the roll-out. It would put an end to HMRC’s hopes of extending the reforms into the private sector yet whilst it would be a huge, costly scandal, it is still the better option.
Tax experts have speculated that HMRC does not consider MOO to be a useful test in determining IR35 status, insisting that a simple engagement, where a worker carries out work offered to them, constitutes MOO. In tax law, this is true. However, IR35 depends on employment status indicators that fall within employment law, which considers MOO to be an ongoing obligation between worker and hirer which is a much harder criterion to satisfy.
The Treasury has strongly hinted that IR35 rules governing how freelancers and contractors are taxed could soon be extended and rolled out to the private sector. it's more than unsettling, writes Julia Kermode, chief executive of The Freelancer & Contractor Services Association. more»