The government has been criticised after suggesting that contractors could use self-assessment to challenge IR35 status assessments. The claim came following a Public Accounts Committee (PAC) report which criticised high levels of IR35 non-compliance.
In the report, the PAC said that government difficulties in abiding by the IR35 rules, which came into force in the public sector in 2017 and in the private sector last year, reflected poor implementation by government bodies, such as HMRC.
The report stated: “The absence of a clear definition of self-employment, and limited access to relevant personal information for each contractor, can make it challenging for hiring organisations to make status determinations confidently.”
The report was also critical of the difficulties faced by contractors in challenging incorrect IR35 determinations made by their customers. While contractors are able to challenge their hiring organisations directly, there is no independent appeal process.
HMRC has responded that contractors who appeal to their employer but still dispute their status determination could use their Self-Assessment tax return to reflect their own assessment.
HMRC said: “HMRC has 12 months from the date the return is received to open an enquiry, during which it may consider whether the employment status is correct. Where HMRC disagrees with a customer’s Self-Assessment, all customers have the right to have the decision reviewed, and to appeal to an independent tribunal.”
However, this response has been widely criticised by figures within the contracting industry. IR35 Shield CEO Dave Chaplin said: “To suggest a worker can seek to reclaim monies from an incorrect assessment via the self-assessment tax system is misguided, because the worker cannot reclaim the bulk of the deducted monies”.
Chaplin continued: “Also, to suggest the worker can appeal to a tax tribunal is absurd, because the cost of doing so will far outweigh the tax and could take up to 10 years to resolve as we have seen happen. The government’s comments claiming there are ‘appeal routes’ is impractical nonsense and highlights the impediment to natural justice inherent in the IR35 reforms.”
Qdos CEO Seb Maley, meanwhile, added: “The PAC provided a damning assessment of IR35 reform, with the report calling on HMRC to make changes to these flawed rules. And while HMRC has agreed with the recommendations made, the tax office is merely promising to review and research these issues further.”
“Ultimately, this response lacks a concrete promise to resolve several of the fundamental issues resulting directly from the introduction of IR35 reform – whether that’s to ensure contractors have a fair shot at overturning unfair IR35 determinations or to give businesses every chance to comply with the rules. It’s a disappointing – albeit predictable – response that we’ve seen far too often from the government whenever it’s pressed on IR35.”
