Recently, we brought a case in light where two contractors were facing liabilities worth £100,000 in total. Fortunately, the crisis was averted as the case closed in their favour. Amidst the positive atmosphere, one should not dismiss the chaotic and unsystematic approach adopted by the HMRC.
The controversy has raised several questions. Analysts wonder that despite the fact that contractors used the right of substitution, why was the HMRC so slow in acknowledging the fact that they are not confined by the jurisdiction of IR35? The HMRC took around a year to come to this realisation, which is quite troubling and makes it appear that the taxman is not fully committed for the protection of contractor rights.
Obviously, the right of substitution does not provide 100% guarantee whether a contract belongs in the IR35 or not. However, the HMRC’s own tool CEST proves otherwise. If you run a genuine case which includes the right of substitution into CEST, then the result will confirm that it does not fall within the scope of the IR35. This begs an important question: If the HMRC was so confident of its IR35 tools like CEST, then why did it choose to ignore it during the recent case involving the two contractors?
Some analysts conclude that the department lacks coherence and suffers from internal rifts. Regardless, it does not bode well for the taxman in future.
We believe that the end-clients were not able to exercise control. Judging all the facts, it was clear that it was an open-and-shut case which makes it impossible to understand what made the HMRC so adamant in its approach.
There was something uncommon about this fact, other than the aspect that both of the contractors were associated with the same limited company. Earlier in 2017, the HMRC began an enquiry and resolved to conduct an investigation against the business by January 2018 for liabilities associated with IR35. It seems more likely that these proceedings were not co-incidental, and analysts have raised their eyebrows over the speculation that the business was targeted due to material gained from information exchange among departments.
As the contractor industry in the UK worriedly sets its sight on HMRC’s future attitude, the taxman bears the duty to function better. For starters, it can think about its implementation of IR35 and work on improving it to conduct fair and just enquiries.