Blanket IR35 decisions to face MP scrutiny – QC

The ‘blanket’ decisions on IR35 status that the NHS and other public bodies have wrongly made is going to be a future focus for the MP-panel scrutinising the BBC’s use of PSCs.

Jolyon Maugham, QC, made this prediction last week, saying that the Digital, Culture, Media and Sport Select Committee will next have to probe the misapplication of last year’s IR35 reforms.

“In two years’ time this committee is going to be looking at a different question”, began the barrister, a director of the Good Law Project, who gave his evidence to the MPs on Tuesday.

“[The question will be] 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 that those people were properly taxed as self-employed.”

The barrister said that as a result of the April 2017 reforms to IR35 – which were restricted to the public sector but are now mooted for the private sector too, PSCs were being misclassified.

“The NHS; government departments engaging IT contractors [and] the BBC are all adopting very very low-risk approaches to those engaged on freelance contracts through PSCs

“And,” continued Mr Maugham, “they’re saying ‘everybody is, in effect, an employee’ [but they’re saying this applies] in circumstances where the law does not support that conclusion.”

The law also (if followed correctly), should mean that ‘blanket’ decisions do not get made often, because a ‘reasonable care’ clause compels end-users to decide status on a case-by-case basis.

But in his evidence, Mr Maugham cited two additional instances of wrongdoing – the first by the IR35 digital tool (known as CEST), and the second where end-users interpret its results.

He said: “Individuals who are doing… [CEST] and arriving at an inconclusive result are being told by [end-users such as] the BBC that they have to be taxed under PAYE, even in circumstances where that result is -- in some cases -- just wrong.”

The Deveraux Chambers barrister has also suggested that, because they paid themselves as ‘outside IR35’ which 'led to the tax problems they have,' the PSCs were “poorly advised”.

“Naturally most accountants will act in the best interest of their client and will provide fair and impartial advice with regards to tax affairs,” reflects Seb Maley of IR35 advisory Qdos.

“[But] over the years, a focus on ‘take-home pay’ has also developed with accountants providing calculators on their website -- the vast majority of which display 'outside IR35' [take-home pay] figures.

“Some newer contractors tend to use these calculations as a basis for choosing an accountant, rather than considering their expertise or proficiency. Therefore, in some cases ‘good’ IR35 advice may come second, behind winning a client, and advice about the risks of trading 'outside IR35' may not be as forthcoming as it should.”

Another explanation as to why PSCs at the BBC were advised to treat their payments as inside IR35 (when the opposite better reflected their circumstances), has its roots in poor policing by the taxman.

“Advisers may have taken their cue for HMRC’s inaction,” Mr Maugham submitted to the MPs.

“Advisers would have been looking around at perhaps a decade…of complete inaction by HMRC in this sphere, and thinking to themselves ‘well if HMRC aren’t taking any action in relation to [outside IR35 payment] arrangements involving broadcasters, perhaps our advice in the past [to operate PAYE on the entire sum paid to the PSC] has been too conservative.’”

Editor's Note: Related --

When CEST can't decide your IR35 status

Tackling the IR35 review quandary -- an attempt

Final advice for PSCs who've been blanket assessed