All IT contractors who are concerned about the changes to IR35 should be aware of the taxman’s recent ruling in the case of two BBC presenters where it was decided they are inside IR35. Whilst this may seem confined to the TV sector it speaks to the potential perils of switching from contracting to PAYE
What is more concerning is that HMRC took the opportunity of the presenters in questions decision to leave their PSCs and operate PAYE as a chance to investigate whether there were any changes to their working practices.
Essentially from 6th April 2017 HMRC will be attacking IR35 via corporate bodies instead of the much harder task of dealing with individual contractors.
New IR35 Case Looms
Fortunately for those public PSCs potentially on the receiving end of IR35 enquiries, once the First-tier Tribunal (FTT) hands down their ruling on the IR35 status of the two BBC presenters, there may well be some useful pointers that contractors can potentially use in any defence that they have to make against the Intermediaries legislation (IR35).
And as there has not been an IR35 tribunal hearing for five years, it will be very interesting if the judge takes a different approach to interpreting evidence in relation to the status tests.
HMRC vs BBC
However this may not faze the HMRC all too much. The Revenue clearly views the 100 or so BBC presenters in its IR35 net as ‘soft’ targets. They are all working for one organisation and if HMRC are successful with the two initial presenters in question, they will be very confident of catching the rest. This is the clear advantage of the ‘corporate’ approach to attacking IR35 that will be enshrined for HMRC from April, assuming the proposals go ahead.
Bear in mind; it may be that HMRC intends to use the BBC presenters, not only as an efficiency exercise, but as an example to the public. It has been no secret that the government has been dissatisfied with the yield generated through IR35 enquiries over recent years, and in the IR35 ‘discussion document’ published in July 2015, it was suggested that simply the existence of the legislation deterred the avoidance of £520milllion in tax. Perhaps, this high-profile investigation effort is a way in which to further deter others in the TV & film industry who are operating via PSCs.
It doesn’t seem however that switching from PSC contracting to PAYE is generally perilous – as long as the working practices while contracting ere clearly outside IR35. What is clear from the BBC case is that HMRC doubtless saw the change from PSC to PAYE as an opportunity to examine whether there were any major changes in the presenters’ working practices as contractors, compared with their subsequent work as employees.
The more common transfer seen is when employees switch to contracting within the same organisation, but the comparisons are ultimately the same. And who knows if this is about to reverse, so that the common transfer actually becomes ‘PSC to PAYE’ (rather than PAYE to PSC); the very switch that caught HMRC’s attention with the two BBC presenters. Optimistic contractors will point out that, under the April regime, they will be relinquished of the IR35 responsibility, yet there are already reports of government departments giving PSCs an ultimatum to join the payroll or terminate their contract Is this how corporate bodies (the incoming liable parties for IR35) are going to react? Agencies and engagers may well like the look of these ultimatums, but they risk leaving the public sector bereft of either niche skills or much-needed morale. Given that HMRC have begun their enquiries after two BBC presenters transferred to permanent employment, it is understandable that many contractors will be more sceptical than ever of making the same transition.