Government departments have been severely criticised by MPs for “widespread non-compliance” with off-payroll legislation resulting in £236m being owed to HMRC for incorrect IR35 status determinations in 2020-21. The Public Accounts Committee said: “Such widespread non-compliance is not acceptable, particularly as government bodies should be best placed to understand the rules and communicate with HMRC.”
The reproach is part of a scathing report by the Public Accounts Committee, and their other findings include:
- reforms were poorly implemented by HMRC;
- it is too difficult for workers to challenge incorrect statuses;
- there was insufficient analysis of the full costs incurred by the reforms;
- there is lack of understanding of the impact on workers and labour market;
- some income has been taxed twice;
- there are still structural problems with IR35 itself.
In short, HMRC is not doing enough to understand the impact of the reforms, the financial costs, and there are still structural problems with IR35 itself!
So why didn’t anyone tell HMRC this before they went ahead? Oh hang on a minute, lots of us within the contracting sector did! Several times in fact. But true to form HMRC ploughed on regardless, driven by an outdated view of ’employment’ taxes and inaccurate perceptions of the contractor workforce. They seem to think that independent workers are deliberate tax avoiders, but research consistently shows that tax is rarely a motivation for contracting.
It is wrong that businesses are now too scared to engage contractors via personal service companies, despite this being perfectly legitimate. And all this at a time when we need businesses to be agile, innovative and creative in a post-pandemic world.
