HMRC accused of peddling IR35 'propaganda'

HM Revenue & Customs has fired back in what IR35 experts say is a “propaganda” campaign, started by HMRC to persuade ministers to extend the off-payroll rules to all PSCs.

Writing for the People Management blog of the Chartered Institute of Personnel and Development (CIPD), top tax official Jim Harra said “too many contractors” were still flouting IR35.

Accusing them of “paying less tax than they owe” by being able to decide themselves as outside IR35 -- a decision that extending the rules would prohibit, Harra chose to speak of political impacts.

In fact, ahead of next month’s Autumn Budget 2017, he claims that such contractors are “denying the country hundreds of millions of pounds for schools, hospitals and other public services.”

His article, clearly marked “Opinion,” is significantly timed for another reason. It follows criticism of HMRC for passing off its “view” of off-payroll reform as the official minutes to a formal meeting.  

‘Presentation’

Levelled in an exclusive piece for ContractorUK, the criticism from an IR35 Forum member implied that HMRC had made a “presentation,” to try to convince ministers to extend the rules.

IPSE, which also attended the forum’s meeting, agreed, charging the Revenue with using a meeting’s formal minutes to give its own opinion, instead of reflecting the issues raised.  

Now Mr Harra, HMRC’s tax assurance commissioner who is also the department’s director-general for “tax design”, has fired back. He’s making some accusations of his own.

“Contractors and others who stand to lose out financially have spread a great deal of misinformation about the consequences of the reform,” Harra said, without evidencing his claim.

“There has been a great deal of misinformation in some sections of the media…including suggestions that there would be a mass exodus of contractors from the public sector.”

‘Disruption’

Despite implying the suggestion to be untrue, two recruiters serving the public sector, Hays and Parity, have both said that the public sector has -- in fact -- suffered since the reforms.  

Another staffing agency, Harvey Nash, yesterday told ContractorUK that the April rules have indeed caused “disruption,” notably in the ‘approach public bodies take to talent resourcing.’

But agencies may come under fire too. Abbey Tax, an IR35 advisory, says it is “taken aback” to see recruiters now deeming PSCs the ‘fee-payer’ in their bid to dodge any liability.

“It just doesn’t seem to be right to give a [PSC] entity the ‘status’ of ‘fee-payer’ when the legislation does not provide for this ‘transfer of liability’ except in cases of fraud”.

“We are not sure what the legislative basis for such a clause is”, the advisory also said.

“Nevertheless, it is just a question of time before HMRC do pick up on an error and a fee-payer agency is landed with the tax/NICs bill; and then seeks to take action against the contractor by using the ‘off payroll’ clause.” 

‘Propaganda’

For now though, it is the taxman who is under fire (visibly on LinkedIn) for his CIPD ‘article.’ “This story isn’t much more than propaganda,” Simon Dolan blasted to ContractorUK last night.

The boss of Dolan Accountancy, which offers PSCs unlimited IR35 contract reviews added: “This [is HMRC] …trying to squeeze more tax from individuals who don’t want to be employed but instead take risks and enjoy the challenge of consultancy roles. 

“[So] to suggest [as HMRC does that] these are just normal employees who have somehow found a way to circumvent the rules and avoid tax is just plain wrong.”

The accountant predicts a “a massive backlash” if the government “tries to stifle entrepreneurship and the flexibility of the consulting community” by extending the public sector’s off-payroll rules. He warned: “The impact on the private sector would be disastrous.”