Data obtained by ContractorUK uncovered that HMRC has topped the leaderboard for IR35 blanket decision-making, since April 2017’s changes to the legislation. A blanket-decision is when contractors are assessed collectively rather than individually for their IR35 status. From the 38% of PSCs working at public bodies to have suffered a blanket decision, nearly 19% of these were working with HMRC.
The NHS and Ministry of Defence came in joint-second on the league table. 17% of PSCs out of the 38% universally assessed were on a contract at each of the public bodies. However, ContractorUK remarked that it was not surprising that these two organisations unanimously assessed their contractors, as inside IR35, as they were among “the first to unveil anti-PSC measures before April 2017.”
Additionally, the BBC was reported to have made a blanket decision on 3% of the 38% of PSCs to be affected, while the Ministry of Justice was recorded to have universally assessed 2% of this 38%.
How did experts react to HMRC’s IR35 blanket decision-making?
There is understandable concern regarding the fact that HMRC is accountable for the most IR35 blanket-decision making. Qdos Contractor noted, “HMRC would never consider its determinations to be ‘blanket’ ones, but this is certainly the impression that contractors on the receiving end have got.”
From figures cited in the IR35 consultation, all of HMRC’s role-based determinations were placed inside IR35. While in theory, if every contractor were in the same role with equal contractual terms, working practices and circumstances, a single determination could be acceptable. However, as Qdos Contractor’s CEO Seb Maley countered, “In practice…it is not as straightforward…it would not be possible to ensure that all contractors working under the same role operate with equal working practices without checking each case.” Furthermore, he observed that “role-based blanket rulings tend also to favour the ‘inside’ IR35 result. It is unlikely HMRC would accept this at the same face value for a role-based ‘outside’ IR35 blanket decision.”
Qdos Contractor went on to suggest that for IR35 blanket decision-making to be fair there are five key questions HMRC must answer:
- What sample size is needed to make the initial assessment of a role-based decision?
- Will HMRC use clear criteria (other than the decision that was made) for their inspectors to determine if the role-based decision is to be accepted or denied at face value?
- Will HMRC provide guidance for when a role-based assessment is or is not appropriate for agencies and end clients to apply?
- Will businesses be penalised for applying blanket rulings, which are incorrectly inside IR35?
- How will HMRC ensure fair compliance activity with regard to blanket rulings i.e. not only investigating those who haven’t applied IR35?
Many within the industry have agreed that role-based decision-making is not ideal. As Seb Maley critiqued, “What HMRC seems to be forgetting, is that role-based IR35 decisions can easily result in incorrect assessments, leading to the wrongful taxation of contractors. However you look at it, this is unacceptable.” So it is HMRC’s responsibility to be able to answer the above questions satisfactorily before role-based IR35 blanket decision-making can even be considered.
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