Lords add fuel to a taxman and government under fire over IR35

The government and the taxman have both come in for criticism at the second expert-witness session of the Lords off-payroll inquiry into IR35 changing from April.

Driven by a “sense that something must be done”, different governments’ “successive goes at” IR35 and status have “run into problems”, said the CIOT’s Colin Ben-Nathan.  

Sat next to him was Meredith McCammond of the LITRG, who echoed: “Measures such as IR35 and the off-payroll working rules, all they do, is put sticking plasters over fault-lines.”

Exacerbating the situation, HMRC “just [publishes] guidance on .gov.uk and it’s put up silently,” meaning that “unless you’re looking for something, you’re not going to find it.”

'Blind-spot'

McCammond, a chartered tax adviser, hinted that a bigger problem than the Revenue’s communications being too “passive,” was that the department suffers from a “blind-spot”.

“There is a bit of a blind-spot within HMRC as to how the temporary labour market works and all of the dark arrangements and engagements that can come out of that.”

She added: “[We] would be surprised if HMRC has a full understanding of what’s going on out there in terms of arrangements, in order [for it] to be able to advise ministers properly.”

'Harvard Law Review'

Her evidence to the Lords was not entirely critical of HMRC, however. For example, she said CEST’s wording has been simplified, so it no longer reads at “Harvard Law Review” level.

Facing the peers on behalf of the Chartered Institute of Taxation (CIOT), Mr Ben-Nathan agreed that the November update to CEST represented an improvement for taxpayers using it.

Yet he feels more ought to be done. He said: “There’s now detailed guidance as to what the questions actually mean. But…simple things, [like]…an integrated link [still need doing].”

'We are where we are, unfortunately'

The CIOT’s employment taxes committee chair sounded more concerned at the IR35 Reform Review, and how both it and HMRC guidance appear shoehorned in before Budget 2020.

“February 7th was when it [the guidance] was issued and that doesn’t give a huge amount of time for everybody. But we are where we are, unfortunately.”

He added: “It’s not an independent review...and is being done very quickly. I believe we are being listened to…but it is not clearly an independent review.”

Whether the CIOT “has confidence in the review,” as asked by Lord Tyrie, was ducked by Mr Ben-Nathan, who said he hoped HMRC would agree to a “soft landing” of the April rules.  

'Make sure HMRC has got their finger on the pulse'

But perhaps almost regardless of what the review concludes, his fellow witness said that the Low Incomes Tax Reform Group (LITRG) would need to check-in with the Revenue.

“We’d like to make sure HMRC has got their finger on the pulse of what’s going on…in terms of movement of workers into schemes, come April 2020,” said Ms McCammond.

Later, LITRG’s technical officer also said: “It doesn’t really make sense to be in a master-servant relationship for tax purposes but be in a self-employed relationship for employment law purposes.

“Our view…is that if you’re in a master-servant relationship for tax purposes then that would indicate that you need some sort of basic suite of protection…[under] employment law.”

'Real pain'

Chairing the inquiry, Lord Forsyth revealed many more individuals than he was expecting have come forward to ask for protection -- from the taxman’s April framework.

“This particular inquiry, we’ve already had 300 emails, which suggests to me there’s real pain out there,” he said.

“I’ve been very, very surprised by the extent which this inquiry has provoked a reaction. And that says to me that there is real pain out there.”

'Astounded'

The Tory peer also said that the emails from contractors were all saying the same thing -- that support from HMRC is threadbare.

“There’s no communication [from HMRC apparently],” he said. “People are not getting the information. And in so far as they get a response [from HMRC], it’s ‘Look on the website.’”

Online, after the session, Jenni Howard, head of compliance at Evolution Recruitment Solution reflected: “[These] committee members who have scrutinised numerous pieces of legislation and policy have been astounded by the volume of submission already to the inquiry.

“It’s heartening to see proper scrutiny being brought to bear. [But the big question is] ‘Will it change anything?’”

'Government needs to get a lot better at joining up facts'

Speaking just before the session’s close, Lord Bridges signalled that something needs to change if government is to grasp IR35, tax and employment status sensibly, even if not definitively.

“We seem to be not having the best of joined-up government here. On the one hand we have HMRC doing IR35; on the other hand we have BEIS looking at employment status”.

Befuddled, the Tory peer added:“[But] come the end of this year if I’m someone who’s affected by IR35 I’m going to be…treated in tax terms in one way, and employment rights in another way. Am I right in saying government needs to get a lot better joining up these facts?”

“I entirely agree”, Mr Ben-Nathan replied from the expert-witness gallery. “Maybe it’ll be different this time around, I don’t know. But I do agree that the joined-up approach is the way to go. And there is some work to do.”