IR35: HMRC denies creating ‘culture of fear’

HMRC has denied claims that the proposed changes to IR35 are creating a “culture of fear” for contractors and corporations.

“If you look at all the letters they send out and if you look at what they’ve published in relation to these new reforms, they absolutely do [create a culture of fear],” says Dave Chaplin, CEO of Contractor Calculator.

Darren Fell, CEO of Crunch Accounting has suggested many firms feel under similar pressure.

“The hundreds of people I’ve spoken to, especially if you speak to the payroll departments, they are scared and what HMRC have done is instilled a fear culture into corporations,” said Fell in a podcast for Accountancy Age.

However, when asked for their response to allegations of creating a culture of fear, HMRC said in an email: “This is absolutely not the case.

“Contractors who are complying with the existing rules will feel little impact and HMRC has committed to not using information resulting from these changes to open a new compliance check into PSCs for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour.

“The Government values the contribution of all flexible workers to the UK economy. The reforms don’t stop people working through their own companies; they help ensure the right tax is paid. The changes ensure consistency in the administration of the off-payroll working rules across all sectors.”

Chris James, director of accounting services at JSA Services says HMRC have developed a “bunker” mentality.

“Over the last 10 years it’s got harder and harder to have a normal conversation with HMRC and it feels a bit like they are bunkered and think everyone’s against them. And their reaction to that is to just go out all guns blazing against everybody else,” James said.

IR35 the “sledgehammer”

James added that the changes to IR35 were unfairly harming many people it was never supposed to affect.

“The legislation is hitting far too many people that it wasn’t supposed to hit because it’s being rushed, because business isn’t ready,” James said.

“This piece of law is a sledgehammer which is affecting far more people than it was intended to affect,” he added.

However, HMRC said the rules target non-compliance.

“The change to the long-standing off-payroll rules ensures the correct tax and National Insurance contributions is paid by shifting responsibility for employment status decisions from workers to the organisations they work for. This change will address widespread non-compliance which denies the Exchequer significant revenue for essential public services.

It does not affect people who are self-employed under existing employment status tests and will ensure that tax that was always due is paid. Contractors who are complying with the existing rules will feel little impact.”

HMRC also denied that the legislation was being rushed, despite the new Chancellor, Rishi Sunak MP hinting at plans for a soft-landing period to ease in the new IR35 rules.

“Following consultation, the Government announced that the change for medium and large businesses wouldn’t come in until April 2020. This has allowed them 18 months to prepare.

“HMRC has put various measures in place to help businesses and other organisations get the status of the contractors they engage right. We have dedicated teams providing education and support to all businesses, public bodies and charities affected,” they said.