HMRC 'will resist any reversal of end-clients making decisions on IR35'

The taxman will oppose any deviation from the central tenet of IR35 reform – that engagers decide the status of their limited company contractors.

Issuing this assessment, HMRC dispute firm WTT Consulting could have been trying to clue-up or warn those hoping chancellor Jeremy Hunt uses his Autmn Statement 2022 on November 17th to announce an off-payroll review.

But the firm’s Graham Webber, who specified the resistance by HMRC to removing clients as the IR35 decision-makers, was actually deciphering HMRC evidence on the row back of IR35 reform repeal.

'An advantage is we can hit one-to-many PSCs'

Asked by Public Accounts Committee chair Meg Hillier MP about what would have happened if IR35 reform “remained cancelled,” HMRC chief executive Jim Harra let it be known that his organisation would have been at a disadvantage.

Mr Harra said: “One of the advantages of the 2017 and 2021 response, from HMRC’s point of view, is that it gives us a smaller number of people whose compliance we have to manage, because we can hit one-to-many, when we go to an engager who might employ 20 or 30 or 50 contractors.”

The Revenue’s CEO also explained that HMRC’s concern with removing IR35 reform, with the effect that IR35 decision-making would revert to PSCs, is there “would have been an increase in [IR35] non-compliance”.

'HMRC will resist reversing of clients making decisions'

Reflected WTT’s Mr Webber, formerly a tax official: “For me, this points to a view from the very top of HMRC that [it] will resist any reversal of end-clients making decisions on status.”

In his evidence, Mr Harra confirmed the Treasury’s official estimate that reinstating the 2017 and 2021 frameworks removes £2billion a year from the government’s Growth Plan, hatched at Mini-Budget.

The top taxman was told by Ms Hillier that HMRC “spent a lot of time and effort” on having to plan for the repeal of the frameworks, to which Mr Harra confirmed that his policy advisers have been “very busy”.

'Probably shocked -- they have my sympathy'

“I think HMT and HMRC are probably as shocked as the rest of us,” a former tax inspector speaking on condition of anonymity said, after then-chancellor Kwasi Kwarteng stood up and cancelled IR35 reform.

“This is not something I say very often but they have my sympathy. Yes they have influence but they are after all civil servants, tasked with implementing what the government of the day decides including when things change.”

In a statement, the former Revenue officer continued to ContractorUK: “They are used to lengthy consultation processes and stakeholder engagement, which aim to iron out anything they had not thought of. So to have to change tack so rapidly is quite extraordinary.  I suspect they…had little rest [since the reform was announced for repeal and then reinstated].”

'PSCs didn't relish the idea of having to work out HMRC guidance on small companies'

Contractor accountancy firms were instantly very busy too on the morning of September 23rd 2002.

One was even set to demystify the off-payroll rule guidance on ‘small companies’ (which HMRC was referring parties to if seeking guidance on the reform’s repeal) because as the tax firm said, PSCs “probably don’t relish the idea of [suddenly] having to work it out.”

But even that trawl through HMRC guidance would have been better to what has been announced, indicates Aspire.

'Backward step'

“The…[decision by Mr Hunt] that IR35 reform will no longer be repealed is a backward step,” says the recruitment agency’s founder Paul Farrer.

“IR35 reform creates unnecessary barriers to engaging [skilled limited company] workers, preventing businesses and the wider economy from reaping all the rewards of freelance workers.”

Also not a fan of cancelling the cancellation of IR35 reform, because of the hassle alone, is CWC Solutions managing director Carolyn Walsh.

“If only the government knew, that the issue could have been tackled by a further reform to agency legislation,” she told ContractorUK. “Then they could have left the revocation of the off-payroll rules in place.”

'Widespread non-compliance'

But ‘the issue’ which Walsh refers to, would have just got bigger according to Chartered Institute of Taxation public policy director John Cullinane.

“[Reversing the 2017 and 2021 OPW rules] would just have placed the burden of compliance back on small independent contractors and freelancers-- leading to either widespread non-compliance, or to costly compliance activities for HMRC”, he says.

In his evidence to the PAC, HMRC’s Mr Harra claimed HMRC “would have put quite a lot of resource up front in helping engagers to get to grips with their new obligations,” had the reversal gone ahead.

'Guaranteed outside IR35 way of working'

And the Association of Independent Professionals and the Self-Employed (IPSE) has come up with six reasons why the government is “fundamentally wrong” not to have kept the rules’ reversal in place.

It is not among IPSE’s six, but U-turning on IR35 reform reversal has refired the search for ‘solutions’, including a “way of working” to transfer an inside IR35 role to outside IR35 role, as well a “guaranteed outside IR35 way of working.”

Declining these exact requests from parties hoping for such quick fixes since the OPW rules were reinstated following their briefly pledged reversal, is WTT.

'Commonplace to be offered a higher fee to give our backing'

“A little [new] structuring and a lot of reliance upon the words in a contract….[plus] a literal interpretation of the law…[while also] ignoring many of the case-led principles [isn’t going to work],” warned the firm’s Mr Webber.

“Although this party has not offered us a higher fee to reconsider [our decision not to assist them], in other instances, this is commonplace -- and we still decline. [Overall, while] we have probably done ourselves out of some fee income, at least we can sleep at night.”

In his PAC evidence on Oct 20th, HMRC’s Mr Harra said the government saying the reforms would go -- and then saying they would stay -- had not caused any reaction.

'Not changed anything'

“From an operational point of view, no,” HMRC’s boss said, when asked if there had been any impact in the two-weeks between 'go' and 'stay.'

Mr Harra added: “We had started some operational planning for what we would have done if the changes had come in, which is not now the case. Otherwise, given that those measures were not intended to come in until April next year, they had not changed anything straightaway.”

Also HMRC’s first permanent secretary, Mr Harra said he did not know “what the resource” was that the tax authority deployed on IR35 reform’s reversal, at least not “off-hand,” even though it would have changed “the nature of our work.”