Taxman tops IR35 blanket decision league table

The taxman has emerged as the top IR35 blanket decision-maker since April 2017’s changes to the legislation took effect, reveal figures obtained by ContractorUK.

In fact, out of the almost four in 10 contractors at public bodies to have had their status assessed universally rather than individually, nearly 19% were on engagements with HMRC.

The NHS and MoD are the joint-second biggest IR35 ‘blanketers,’ because out of the 38% of PSCs to have suffered a blanket decision since last April, 17% were on-contract at each body.

These two outfits assessing contractors as inside IR35 as a group in one fell swoop was always likely, as they were among the first to unveil anti-PSC measures before April 2017.

But it is HMRC being the provider of the most blanket IR35 decisions which will cause alarm today, but perhaps not shock the IR35 Forum after it heard tax officials justify making them.

“There’s a sad irony [to] HMRC accounting for the highest number of blanket determinations, but given its clear lack of understanding of IR35, perhaps we shouldn’t be so surprised”, said Qdos Contractor, which produced the figures after surveying contractors.  

“Of course, HMRC would never consider its determinations to be ‘blanket’ ones, but this is certainly the impression that contractors on the receiving end have got.”

According to the status advisory, which cited the figures in its IR35 consultation response to HM Treasury, “all” of HMRC’s role-based determinations resulted in “inside” decisions.

It added that in theory, should every contractor be in the same role, under equal contractual terms, working practices and circumstances, a single determination could be “acceptable”.

“In practice however, it is not as straightforward,” said Qdos CEO Seb Maley, speaking generally about blanket decisions.

“It would not be possible to ensure that all contractors working under the same role operate with equal working practices without checking each case.”

The only exception to this, he said in Qdos’ consultation response, is where an end-client categorically rejected Substitution, and Controlled all of their contractors, for example.

“[But] role-based assessments also don’t recognise more specific factors to the contractor, such as being in business on your account,” said Maley, who used to work for the tax office.

“Role-based blanket rulings tend also to favour the ‘inside’ IR35 result. It is unlikely HMRC would accept this at the same face value for a role-based ‘outside’ IR35 blanket decision.”

Qdos says that, as a result, the Revenue needs to answer five fundamental questions if blanket, across-the-board, universal IR35 status decisions by engagers are ever to be fair.  

The five are:

1. What sample size is needed to make the initial assessment of a role-based decision?

2. Will HMRC use clear criteria (other than the decision that was made) for their inspectors to determine if the role-based decision is to be accepted or denied at face value?

3. Will HMRC provide guidance for when a role-based assessment is or is not appropriate for agencies and end clients to apply?

4. Will businesses be penalised for applying blanket rulings which are incorrectly inside IR35?

5. How will HMRC ensure fair compliance activity with regard to blanket rulings i.e. not only investigating those who haven’t applied IR35?

“Until such time [that these five are answered satisfactorily by HMRC], we would strongly disagree with role-based decisions being applied,” Mr Maley said.

“What HMRC seems to be forgetting, is that role-based IR35 decisions can easily result in incorrect assessments, leading to the wrongful taxation of contractors. However you look at it, this is unacceptable.”

Other IR35 blanket decision-makers that contractors pointed to in the dataset submitted to HMT included the BBC (approx. three per cent of the 38 per cent to have been blanket assessed), and the MoJ (approx. two per cent).

A little over 40 per cent of the contractors had their blanket assessment carried out by or for contracts with ‘Other’ public sector organisations -- predominately local authorities and smaller government bodies.