UK taxman is supposed to know how IR35 reforms work but still lost appeal against TV presenter Kaye Adams
- Reference: 1614001594
- News link: https://www.theregister.co.uk/2021/02/22/hmrc_ir35_kaye_adams_appeal_lost/
- Source link:
In April 2019, Her Majesty's Revenue and Customs (HMRC) lost its IR35 case to Adams, formerly a panellist on ITV's Loose Women , who was appealing against a challenge to her self-employed status while presenting BBC Radio Scotland's The Kaye Adams Programme during the 2015/16 and 2016/17 tax years.
[1]
Although HMRC took the view she was a BBC employee, the First-Tier Tribunal tax chamber [2]had ruled Adams' plentiful work outside the public broadcaster showed she was working as an independent contractor.
The tax authority had appealed against the ruling but that appeal has now [3]been dismissed [PDF] by the Upper Tribunal (Tax and Chancery Chamber) for similar reasons.
[4]
What is IR35?
IR35 is a tax reform unveiled in 1999 by the UK tax authorities. The latest regulation change will force medium and large businesses in the UK to set the tax status of their contractors and freelancers. Previously this was set by the contractors themselves.
According to critics of the new IR35 rules, set to come into force for the private sector at the beginning of UK.gov's next financial year (in April), freelance techies would be paid and taxed similarly to regular employees but would not get the security, benefits, and protection that goes along with permanent employment. Contractors within IR35 can be hired and fired at will and without reason.
The IR35 reforms have already discouraged many companies from hiring independent contractors employed via private service companies (PSCs) partly down to the new obligations on employers. Banks including [5]Barclays, Lloyds, HSBC, Deutsche Bank, and RBS have all said that they would no longer hire contractors in this way because of the complex assessments to determine whether a contractor falls within IR35 rules – which would create a risk of non-compliance. BAE Systems also applied [6]blanket determinations that put all their contractors inside IR35.
Seb Maley, CEO of tax advisor Qdos, said the Upper Tribunal ruling showed businesses there was no need to make risk-averse decisions in response to IR35 reform.
"Firms should reverse contractor bans immediately," he said. "The case also demonstrates the importance of taking all factors into account when deciding IR35 status – factors such as having multiple clients, which status can evidently hinge on."
Unlike Adams, the majority of contractors would be able to prove their self-employed status with ease, he said.
UK tax collector won't probe businesses for compliance with IR35 rules unless there's reason to suspect naughtiness [7]READ MORE
Earlier this month, [8]HMRC outlined the way that the tax reforms would work and be policed when they come into effect, a year later than [9]originally scheduled .
Despite many attempts to further delay or undo the reforms, the responsibility for assessing the employment status for tax purposes of contractors that are paid via a PSC falls to medium and large-sized employers from April.
However, HMRC said businesses would not have to pay penalties for inaccuracies in the first year relating to the off-payroll working rules, "unless there's evidence of deliberate non-compliance". It also said it would not use information acquired as a result of the changes to open a new compliance inquiry into returns for tax years before 2021 to 2022, "unless there is reason to suspect fraud or criminal behaviour".
Contractors found to be within the scope of the legislation – i.e. inside IR35 – will have to pay more tax than they might expect. The reforms are part of the government's crackdown on so-called disguised employment, where workers behave as employees but avoid paying regular income tax and National Insurance contributions by billing for their services through PSCs, which are taxed at lower corporate rates.
The new rules require assessing whether the contractors meet HMRC's definition of self-employment – criticised by many techie contractors as being variable and difficult to comply with. The controversial Check Employment Status For Tax (CEST) tool provided by the taxman for the purpose has also been criticised by freelancers for giving different results at different times, being susceptible to being "gamed", and for excluding "mutuality of obligation" – the concept that the company is obliged to provide work and the contractor to accept it (which would make them more of an employee).
Critics say that being inside IR35 is essentially "no-rights employment". On the other hand, HMRC has argued that some freelancers are using self-employed tax schemes to avoid tax attracted by their on-payroll co-workers. IR35 reforms came into effect in the public sector in 2017. The government hoped the reforms would recoup £440m by bringing 20,000 contractors in line. The implementation in that area was initially described as an [10]"utter shambles" .
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HMRC reckons that only one in 10 contractors in the private sector who should be paying tax under the current rules are doing so correctly. It estimates the reforms will recoup £1.2bn a year by 2023. ®
Get our [12]Tech Resources
[1] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_business/policy&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YDPjMxtpl9VUTllI2x8i0gAAABI&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[2] https://www.theregister.com/2019/04/16/ir35_win_uk_taxman/
[3] https://assets.publishing.service.gov.uk/media/602fa8f6d3bf7f721b700f18/HMRC_v_Atholl_House_.pdf
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_business/policy&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YDPjMxtpl9VUTllI2x8i0gAAABI&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[5] https://www.theregister.com/2020/02/27/ir35_to_go_ahead_says_government_review/
[6] https://www.theregister.com/2020/02/24/bae_puts_all_contractors_inside_ir35/
[7] https://www.theregister.com/2021/02/17/ir35_compliance_hmrc/
[8] https://www.theregister.com/2021/02/17/ir35_compliance_hmrc/
[9] https://www.theregister.com/2020/03/17/uk_ir35_tax_reform_postponed/
[10] https://www.theregister.com/2017/01/25/gov_advising_it_contractors_to_hike_fees_by_20_per_cent_to_avoid_ir35_exodus/
[11] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_business/policy&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YDPjMxtpl9VUTllI2x8i0gAAABI&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[12] https://whitepapers.theregister.com/
MOO
That's not how MOO "works".
If you're an employee working in project 'X', you can be told to go and work on project 'Y'.
If you're a contractor working on project 'X', then you cannot be required to switch to working on project 'Y' (assuming you have a decent contract in place).
Contracts can also be terminated, usually be either party - there may be penalties for doing so, and it is common for termination clauses to be heavily biased in favour of the client.
Re: Will be delayed (again)
MOO would mean that, at the end of the contract, the employer would be obliged to provide more work for the employee, and the employee would be obliged to do it. Which is employment, even if hidden behind a personal service company.
Without MOO, the contractor is free to say "no" to additional work, and the employer is free to not offer more work. Which is contracting.
Stop going after the small fish.
Instead of going after a small fish that might net the government a whopping few hundred (or maybe even a thousand! GASP!) per year, why not go after the big fish that could bring in the BILLIONS they've been screwing the government out of for as long as they've been able to exploit all those loopholes said governments so helpfully put in place to attract said companies in the first place?
Oh wait, we can't have THAT, that might upset all those fat brown envelopes of "donations" that line your fekkin' pockets, wouldn't it? Bastards.
Re: Stop going after the small fish.
Not only should they stop aggressively pursuing those least able to defend themselves, but how about actually getting rid of the loopholes by abolishing all the various unnecessary different ways of taxing work, and just make it so that all forms of direct remuneration for work are taxed the same.
Re: Stop going after the small fish.
It is more complicated than that. They are slanting the table against the small contractor. If you, say, take up 3 months work 200 miles away then they are stopping you claiming against tax the cost of your rail fares & hotel - insist that you aretreated the same as someone who has lived there for years. And other similar.
Re: Stop going after the small fish.
@alain williams: Most contractors who are forced to stop working through a PSC will end up with an umbrella company. A decent umbrella company should be prepared to deduct travel and subsistence from gross pay.
Of course there's no travel and subsistence while we're all working from home. I was briefly with an umbrella company last year. Although the client supplied a laptop, guidance on workstation safety advises against prolonged use of a laptop keyboard and screen, so I was able to persuade them to allow the purchase of display screens and keyboard as an essential expense. Despite the fact that the same guidelines about correct chair adjustment and posture they wouldn't make a deduction for purchase of an office chair.
'twas the summer of '99
They first announced IR35 in 1999. 22. Twenty. Two. Years. Ago. Let that sink in.
22 years to prove this was the right thing to do, and make it work. I don't think they'll have sorted this out in another 22 years....
Anyone remember "Shout99"?
And the PCG taking HMRC to the High Court?
It estimates the reforms will recoup £1.2bn a year by 2023. ®
By that time the costs of tribunals (lost cases) for it will be £2.4bn a year.
Doesn't this blow most of the HMRC cases out of the water?
If you read the decision, some of the key reasoning for determining Kaye wasn't an employee was a number of things provided to an employee that she didn't have - no restriction on working for others, comparable access to equipment, annual reviews, holiday and sick pay, defined disciplinary processes, etc. MOST IT contractor arrangements avoid at least most of those elements, so it does raise the question of whether the tribunal decision has fatally undermined HMRC's claim that most contractors in PSCs are not correctly determined. This seems likely to be the kind of case that will be widely cited in future cases and HMRC seems likely to have an up-hill struggle to not lose most of its cases from hereon in.
Re: Doesn't this blow most of the HMRC cases out of the water?
It would be nice to think so. Especially as that is pretty much exactly what contractors have been pointing out for the last 22 years, after all.
Re: Doesn't this blow most of the HMRC cases out of the water?
I have noticed a slight change in the way that assertation (HMRC's claim that most contractors in PSCs are not correctly determined) is now pitched: It has become, 9 in 10 of people who *should* be in side are not correctly paying.
No longer do they say "most PSCs" should be inside etc etc .
But yes, agree it rather puts a hole in their argument!
Better yet, as they lost in the Upper tribunal doesn't that mean its effectively "case law"?
/anon... PSC (non wage) slave
"the majority of contractors would be able to prove"
If it happens like it happened years ago with a similar kind of tax, only those with pockets deep enough to challenge the revenue service in all courts will have a chance.
Here too TV presenters and singers were able to demonstrate they were people without a "stable organization" and without "people working for them, but occasionally", required by the law to not pay the tax (even if they had assistants, etc.) while people like me had to pay that just because I had a computer, some software and a desk deducted as job expenses.... it was asserted I had a whole "office" for me (the desk and the computer were at home....) and it was enough to pay the tax. I could not afford spending tens of thousands euros to challenge it to the supreme court... and maybe lose - it would have costed more than paying the tax for several years.
When it comes to fiscal laws, usually you get all the justice you can buy.
Will be delayed (again)
Surely this is going to be delayed by another year, because Covid? If that was the reason last year, then it still applies this year.
Also, the who MOO thing is ridiculous. If you contract an electrician to rewire your office over the next three months, you can't really then turn around and say you don't want them to do the work, once you've agreed on the contract. And they can't really turn around and say they don't feel like doing it any more. Of course you are obliged to offer the work agreed in the contract. How is this a test of employment?