Taxman ‘not doing enough’ to prepare contractors’ clients for IR35 reform

A sense of panic among contractors’ private sector engagers, compounded by fears HMRC isn’t doing enough and so can’t be relied upon, has set in -- 230 days until IR35 reform bites.

“As the enforcement deadline creeps closer, cracks in the business community's preparedness for the change are starting to show,” says law firm Fieldfisher.

“In particular, many are anxious about how work delivered through complex chains of different entities can be made fully compliant with the new rules.”

Those cracks appear to be at risk of deepening now that an HMRC update – containing “guidance and support” for affected businesses  – has failed to materialise.

In fact, despite engagers being promised that HMRC would hand them an education “package”, the assistance now appears late given that it was due by “summer 2019.”

'Surprise and dismay'

Even if it were to emerge before September arrives, the HMRC package already sounds inadequate compared to what engagers want, implies Fieldfisher employment partner Ranjit Dhindsa.

“A number of those [engagers] who stand to be affected by IR35 [reform] have expressed surprise and dismay that HMRC has not launched a mass awareness…campaign”, she said.

“[Or a guidance campaign] about the changes to off-payroll working rules, [as the engagers] fear being tripped up by inaccurate hearsay.”

'HMRC isn't doing enough'

Even HMRC now contacting medium and large organisations affected by the changes is, like the promised guidance package, ‘too little, too late,’ according to status advisory Qdos.

“With April 2020 rapidly approaching, this should have happened months ago,” says the advisory’s Seb Maley. “HMRC isn’t doing enough to support the private sector as it prepares for IR35 reform.”

The adviser suggests that the support has been lacking almost from the outset, notably when the Revenue tried to use its consultation response to address industry’s big concern -- liability.

'Red herring'

“All the complex flow charts documented in the IR35 consultation were a bit of a red herring really, and failed to explicitly state which party would be on the hook if a status decision was overturned,” Mr Maley said, adding:

“And are letters -- which HMRC has apparently started sending out -- going to do the trick? Arguably not. Therefore, my advice to private sector companies is not to rely on HMRC for genuine help when getting ready for reform.”

Accountancy firm Grant Thornton is among those who hope the advice is heeded, as it has launched an IR35 status tool “more comprehensive” than CEST, and using Artificial Intelligence.  

Built to produce a decision every time, alongside a ‘risk rating’ to highlight the potential for challenge, the tool comes at a time when ‘pressure on the engagers of contractors’ is being exerted.

'Time-consuming and complicated'

The firm also said that the tool has been programmed with its advisers’ knowledge about assessing the IR35 status of workers. At Fieldfisher, Ms Dhindsa issued some of her own.

“Companies should ensure that individual [contractors] do not appear in their organisation charts, have company email addresses, use company stationary or computer systems free-of-charge, as these all strengthen the argument that a worker is an employee, rather than a contractor.

“[And] although it is often time-consuming and complicated, companies should always assess the impact of IR35 on a case-by-case basis, rather than adopting wide, blanket determinations for workers.”

She added: “Such approaches can leave businesses open to challenges from individuals unhappy about their determinations and also from HMRC, which may disagree that all workers should be given the same classification.”

'Better at the time'

Yet it is HMRC’s disagreement in July 2018 with almost all accounting, legal and status advisers about MOO being excluded from CEST, which was yesterday exercising experts.

In particular, while the Chartered Institute of Taxation outlined to the Revenue at the time -- more than a year ago -- why Mutuality should be included in CEST, the CIOT says it was asked not to disclose that it did so until this month.

CIOT Member Graham Webber, tax director at WTT Consulting reflected last night: “Whilst the CIOT view is to be welcomed, it would have obviously been better to have shared this in real time and before the draft Finance Bill, now before parliament, became a reality.

“I suspect it is HMRC who insisted that a view contrary to own, discussed perhaps six months ago and reduced to writing 4 months ago, was delayed from publication.”

'Well before'

Writing on LinkedIn, Mr Webber said a better balance was needed between confidentiality and, in light of only 32 weeks to go until the off-payroll tax applies, “public concern.”

His comments come as an update to CEST, promised by HMRC in wake of the criticism about it omitting MOO, remains unscheduled, despite an appeal on behalf of enterprise that it needs to be live “well before” April 6th 2020.