Experts challenge the accuracy of HMRC’s fact sheet about IR35
by Alan Little
Experts are challenging HMRC claims about IR35 in a fact sheet, which was part of the new consultation on proposals to bring the private sector into the fold of the IR35 rules.
In the document, HMRC provides a fact sheet, seeking to end rumours that the reformed off-payroll rules have adversely affected contractors, freelancers, and public sector bodies since coming into effect in April 2017.
Responding to the fact sheet, experts state that the Check Employment Status Tool (CEST) is biased. It determines that freelancers and contractors come under the purview of the IR35 or fails to determine the tax status.
The HMRC-provided fact sheet contends that the CEST provides clear tax status in almost 85% of the cases. To support this, the tax authority has published the latest figures, showing that almost 60% of contractors and freelancers have been judged outside IR35, while 40% have been judged inside the IR35 rules.
Experts are sceptical about these figures, made public by the HMRC in its consultation factsheet. They state the CEST assumes that Mutuality of Obligation (MoO), a major factor for employment status determination, is in force when the tool is used, meaning the employment status determinations are inaccurate and biased. Experts also point out that IR35 specialists and barristers have advised contractors and freelancers not to depend on CEST to determine their employment status.
The HMRC factsheet counters claims that implementing IR35 reforms has led to rising costs in the public sector. It states that most public sector bodies have not seen cost increases. But, statistics from the Association of Professional Staffing Companies show that several contractors have increased their rates, following implementation of the IR35 reforms.
The HMRC fact sheet states that, in most cases, public bodies and organisations are assessing on a case-by-case basis whether contractors come under the IR35. But, figures from the Freelancer and Contractor Services Association, the trade association for umbrella companies, show otherwise. The Association’s figures show that 50% of the public sector bodies have not performed any IR35 assessment for freelancers and contractors, while 26% have opted for blanket determinations, as is the case with over half of the NHS locums.
Experts state that the HMRC fact sheet for the new consultation related to IR35 is misleading and does not give the correct picture of IR35 and how it affects contractors and freelancers working for public sector organisations and bodies.