Empowering the Freelance Economy

HMRC’s misinformation on IR35 sparks concern

Freelancers remain under attack by HMRC whether they work through their own company or umbrella company
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Intense questioning of HMRC Permanent Secretary Jim Harra by the Public Accounts Committee (PAC) over IR35 has raised concerns about the accuracy of information about legal cases carried out by the tax authority on freelancers

Freelancers are feeling under attack in the UK. Whether they work through their own company as self-employed or are pushed into inside IR35 roles working as contractors through an umbrella company, they are at risk of legal injustices and inconsistencies instigated by either the HMRC or the unregulated umbrella sector, according to an IR35 specialist and contractor.

Dave Chaplin, CEO of tax advisory firm IR35 Shield, in addition to starting a legal claims campaign for umbrella workers, has reported in a press release this week what he claims are several instances where Harra’s statements were factually incorrect, highlighting inconsistencies in HMRC’s handling of IR35 cases and the effectiveness of its Check Employment Status for Tax (CEST) tool. We highlight these claimed inconsistencies below.

Chaplin said in a statement: “Jim Harra presented some incorrect statistics when he faced the Public Accounts Committee and he should speak to his litigation teams to recheck the figures he was given. His narrative is a stark departure from the facts and he appears to be misinformed. PAC exists to hold government departments to account and they should be given truthful IR35 information.”

Here is a recap of what Chaplin has reported:

Misrepresenting IR35 Cases

Harra’s claim that most IR35 litigation does not go beyond the First-Tier Tribunal (FTT) is belied by HMRC’s own record of appealing every single case it has lost in recent years, including six straight losses. This contradicts Harra’s assertion that “in recent years” HMRC has won 70% of cases. The actual win rate for HMRC is significantly lower, standing at 48% since the tax authority started using barristers to represent it in IR35 cases.

Misinformed Narrative on CEST

Harra’s statement that HMRC regularly reviews the CEST tool after rulings is undermined by the tool’s outdated decision engine. Since 24 October 2019, nineteen IR35 tax tribunal decisions have been published, yet the underlying logic of CEST remains unchanged, fueling concerns about its accuracy.

Misaligned with IR35 Law

The IR35 specialist says the Atholl House case serves as a prime example of CEST’s misalignment with IR35 law. HMRC’s appeal victory in the Court of Appeal did not result in a final decision on the case, which remains remitted to the FTT. Three courts have unanimously ruled in favour of Kaye Adams, confirming her self-employed status.

HMRC’s Responsibility to Address Injustices

Chaplin says these inconsistencies raise questions about HMRC’s commitment to accuracy and transparency in its handling of IR35 matters. The authority’s focus on litigation rather than addressing the broader issues surrounding the off-payroll working rules, such as the exploitation of workers in the unregulated umbrella contractor market, is concerning.

Next steps

HMRC’s performance during the PAC hearing has cast a shadow over its competence in managing IR35. The authority needs to urgently address the inaccuracies presented by its Permanent Secretary and take steps to ensure that CEST is aligned with IR35 law and that its litigation efforts are focused on genuine cases of abuse rather than pursuing every loss. A shift in focus towards addressing the injustices in the umbrella contractor market is also imperative to protect the rights of self-employed workers.

More detailed background:

Here is a video link to the 25-minute questioning by the Public Accounts Committee on IR35.

On IR35 cases :

  • Harra claims most litigation does not go past the FTT. HMRC has appealed every single case they have lost, including the last six.
  • Harra also claims that “in recent years” HMRC has won 70% of cases. Since the courts changed from special commissioners to FTT/UT, the scores are 64% taxpayers, and 36% HMRC. Since HMRC started fielding counsel, the scores are 52% taxpayers, and 48% HMRC.
  • Harra claims that most cases are represented for HMRC by HMRC caseworkers. However, of the last 22 hearings, HMRC has used barristers in all except one.

1 Comment
  1. Gordon Goodfellow says

    Incompetence of public servants does not surprise me. A few years ago I was ordered by the then (since abolished) OFT who said that my websites were not compliant with consumer law. In fact, I was simply building websites for my clients who were all compliant. But the OFT did not accept that, for some reason.

    I was simply doing what thousands of other webmasters were doing, I told them. I asked why they had not picked this argument with all the others; why just me. They refused to say.

    I asked the OFT officers what parts of my website were not complian. Again they, they refused to tell me.

    They ordered me to take my websites offline and go put right the offending parts of the sites (while not telling me what the “offending” parts were). They threatened me with fines and imprisonment if I did not take the sites down.

    I advised them that if my websites were down for any length of time then they would lose their high ranking in the search engines, particularly Google. They said it would only be a couple of weeks. So I took the sites offline.

    There then followed a series of absurdities which would be outrageously funny were it not for the serious mater of losing my livelihood behind it. In ine case an officer said he would look after this case. Then he went on holiday for ten days, and when he came back he handed the case over to his colleague!

    I kept reminding them that this was time-critical. They did not respond.

    I kept asking them to tell me specifically what parts of my web content they considered to be non-compliant. They kept on refusing to tell me.

    I then started to see my website rankings falling on Google. Had anyone clicked on the link, of course, they would have simply seen a holding page. I pointed out that the ranking of my sites was falling. They did not respond.

    Several weeks later they told me that they considered that my websites were now compliant (which was puzzling as I had not changed anything).

    I had an email from them saying that they had re-entered my websites into their register of compliant sites, and they gave some list of websites. None of them were my websites. Some of them looked similar but were incorrectly spelt.

    I pointed this out to them and they sent me another list. This list was also incorrect. None of my websites were listed there.

    They then sent me a four page document in which they said all my websites were listed. In those four pages there were over 50 errors.

    I put my sites back up. But it was too late. My sites had lost their ranking. A business that I had built from nothing over eight years had been destroyed in eight weeks.

    I had to dismiss two employees. I was no longer contributing tax to the exchequer. I was no longer earning foreign revenue from overseas clients. I wad broke and I had to sign on as unemployed and live off benefits.

    It was a lose-lose scenario for all concerned! Hooray for the OFT!

    I don’t remember much after that. I spent a couple of years under several psychiatrists and it wad only quite recently that I came off the medication.

    We all assume that government departments know what they are doing. But believe me when I say that there is an abundance of incompetence waiting around the corner, and it can destroy people’s livelihoods at a moment’s notice.

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