HMRC has effectively ‘banned’ outside IR35 contractors amid customer service woes

HMRC has effectively “banned” outside IR35 contractors even while they are employing many temporary staff members to try and improve its customer service, according to Dave Chaplin, CEO at IR35 shield.   

In its most recent financial report, HMRC announced plans to hire an extra 1,630 temporary employees each month from April to September 2023. The initiative is intended to enhance customer service standards, as average call waiting times have more than tripled since the 2018/19 financial year.    

In the same document, HMRC revealed that it had not recruited any contractors outside the scope of the IR35 legislation between 2022 and 2023, despite employing 980 off-payroll workers.  

Chaplin says: “HMRC does not appear to want to hire contractors on an Outside IR35 basis, which is odd considering they previously stated only one third of contractors should be caught by IR35. 

 “As to why they have effectively banned ‘outside IR35’ contractors, it’s a mystery, especially as they are likely to be using their own CEST(check employment status for tax) tool, which they say they will stand by. HMRC are hardly going to start investigating themselves.” 

Seb Maley, CEO of Qdos, an IR35 specialist and insurance provider for flexible workers, echoed this view, arguing that HMRC’s excessive use of  temporary workers highlights how important they are during challenging times.   

HMRC’s plan to hire a number of flexible workers each month when they won’t engage with contractors outside IR35 “smacks of irony,” Maley added.   

However, Chaplin also argues that for HMRC’s customer service, employing agency workers aligns with IR35 regulations due to engagement specifics.  

“If HMRC are hiring people to work on their customer service line, then the people are unlikely to be providing services and will be providing skills and expertise and paid for those hours, and will be directed at whichever task HMRC requires.”  

HMRC ‘desperately’ needs temporary workers 

During the 2022/23 financial year, taxpayers spent an average of 16 minutes and 34 seconds attempting to connect with an advisor. However, during the final quarter, the average wait time increased to beyond 20 minutes. 

But to add to taxpayer frustration, HMRC revealed in June 2023 that it would close its self-assessment for three months from July to September 2023.  The tax authority said that it is aware of the seasonal nature of the tax system, stressing that the closure is merely being piloted in an attempt to make the best use of its resources until it reopens.  

Maley said: “On one hand, HMRC desperately needs temporary workers to improve declining service levels. On the other, it seems to be giving them no choice but to work on the payroll – regardless of their true employment status.”  

Chaplin says HMRC is not setting a good example as their approach does not align with their recently published professional standards for compliance.  

“It’s difficult to see how a 100% rate of inside IR35 assessments are reasoned and impartial. It looks like a blanket ban in all but name,” he adds.   

This is echoed by Maley, who stated: “Let’s not forget that this is the same body that created, enforces and insisted on reforming the IR35 legislation. Rather than demonstrating to other organisations how different types of flexible workers can be engaged, HMRC is a shining example of how not to go about it.”