“Whichever way you look at the public sector IR35 rules you cannot avoid the conclusion that risk of tax liability only arises in two scenarios: if there is a determination that a contractor is outside the IR35 rules, or if there is tax non compliance in a supply chain where the determination is that the contractor is caught.
“Hirers can take some steps to protect against tax non compliance, where PAYE and NICs are not paid to HMRC regardless of the hirer’s determination that the IR35 rules apply, but none can stop a tax investigation where the determination is that the arrangement is ‘outside’. The impact of this risk is obvious – most will want to avoid it, particularly in the private sector where financial risk is much more a critical factor than in the public sector.
“Given that HMRC must understand commercial risk for it to propose a tax that is to apply to the private sector, it follows that HMRC is well aware that risk averse hirers will make these blanket IR35 assessments. Such assessments will always be that the arrangements are caught, not the other way round. Making blanket assessments avoids all risk save that the hirer may find it difficult to find top quality contractors willing to work under the IR35 rules, and if all hirers took that approach that would be the end of contracting as we know it. Unlike in the public sector, HMRC cannot use its status to request hirers to stop making blanket assessments.
“If HMRC doesn’t recognise this, then perhaps it should. It goes a long way to explaining why there is considerable disquiet amongst both hirers and contractors over the current IR35 extension proposals.
“Also, it seems obvious that only a few hirers will want to set up an appeals process against their own ‘caught’ decisions, and no one is going to appeal a ‘not caught’ one. The process would involve time, money and possibly contention, against the background that it is the hirer who knows what the job involves and who can choose whether to take the risk. This proposal alone, which HMRC says will be mandatory, may deter hirers from hiring contractors wherever the rules might apply.
“Logically, and perhaps cynically, this must have been factored in to HMRC’s calculations, meaning that the proposals to address contractor complaints about determinations, such as the suggested appeals process, are nothing but a blind. Blanket ‘caught’ assessments are inevitable. Given HMRC’s plan to raise more money, its proposal is a master stroke.
But, surely there must be a better and fairer way to address tax avoidance?”
HMRC’s proposal to extend IR35 rules is subject to a ‘technical’ consultation which is due to close on the 28th May 2019.