IR35 Performance Review

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In a recent Public Accounts Committee (PAC) Meeting reviewing HMRC’s performance, MP Meg Hillier opened proceedings by questioning the Treasury’s Jon Thompson and Jim Harra on the reliability of CEST, the Government’s IR35 tool.

Specifically, Mrs Hillier referred to comments made by BBC Director-General, Lord Hall, in which he alluded to the tool not being ‘fit-for-purpose’. At a glance, here’s what we learnt from the conversation that followed:

  1. HMRC must be made to work harder.

Jon Thompson and Jim Harra both looked fairly comfortable when quizzed on the reliability of CEST. Mr Thompson spoke of the tool delivering 60% outside IR35 determinations, with 40% inside, but wasn’t interrogated about HMRC’s flimsy implementation of reform, which has reportedly led to 76% of public sector bodies making blanket and role-based assessments.

Given HMRC can’t prove  its own IR35 tool to be accurate, it would have been interesting to hear their response when faced with the facts. That said, this isn’t something which should be left only to Meg Hillier, who deserves credit for tackling the issue in the first place.

 

    2. HMRC don’t understand the true impact of IR35 reform.

A fair and important question regarding the reliability of CEST was shut down immediately by HMRC’s Jon Thompson, which yet again reflects The Treasury’s unwillingness to listen.

HMRC has enforced unpopular changes to the way in which IR35 is administered, and if every party in the supply chain is being made to adjust, why won’t the taxman?

For reform to work, HMRC must carry out an honest review of its impact. We’re one year in and the Government hasn’t reflected on, accepted or wants to accept the reality of the situation.

 

   3. MPs need to take IR35 more seriously.

The PAC meeting was also an opportunity for MPs other than Meg Hillier to outline the importance of improving CEST. After all, IR35 reform is an issue which affects millions of constituents in the UK.

This was a chance for MPs to show a legitimate interest in IR35, which unfortunately, they chose to ignore. With speculation mounting that private sector changes will be announced in due course, they might soon be forced to take notice.

    4. IR35 expertise is a rare commodity.

The complexity of the IR35 legislation is perhaps its biggest undoing. With this in mind, more might have been extracted from the PAC meeting with the presence of a specialist.

As competent as Meg Hillier’s questioning was, you could argue CEST being described as ‘not-fit-for-purpose’ by Lord Hall was a pointer to the fact the IR35 testing methods keep changing. Since the arrival of the legislation, the Government has put its faith in the Business Entity Tests (BETs), the assurance process without BETs, and more recently, CEST. What next?

Perhaps an expert would have explored this further. Of course, the IR35 forum does give specialists the opportunity to quiz HMRC on reform, but given the current state of play, the more questions they are made to answer, the better.

 

   5. This was a positive step in the right direction.

That IR35 was first on the agenda in this meeting shows how the issue has quickly become part of the wider political discussion. And ultimately, this is good news. But going forward, it’s vital MPs are equipped with the evidence to construct well-formed arguments which force HMRC to justify its approach to IR35.

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