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Sadly there’s a link to unregulated umbrella industry growth and HMRC inside IR35 hiring

HMRC's Tax Avoidance campaign warns contractors that some umbrella companies are a risk. Image Source; HMRC Tax Avoidance Campaign Banner
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‘Hypocritical’ HMRC has not engaged any contractors outside IR35 in past year, says IR35 specialist


IR35 specialist, Seb Maley, the CEO of Qdos, an insurer for the contractor industry, has reacted to the news that HMRC has not engaged any contractors outside the scope of the IR35 legislation in the past year – information that was revealed in the tax office’s Annual Report and Annual Accounts last week.

The accounts show that across HMRC, Revenue and Customs Digital Technology Services (RCDTS) and Valuation Office Agency (VOA) departments, 1096 temporary off-payroll workers were engaged during the year ended 31st March 2023, earning £245 a day or more, according to Qdos.

However, none of these workers was engaged outside of IR35, with the vast majority engaged via an umbrella company, Qdos reported. 

HMRC’s hiring practices are pushing contractors into the unregulated umbrella sector. This is despite HMRC’s tax avoidance education campaign, which states on its site the following warning:

“If you’re a contractor, you may be employed through an ‘umbrella company’. If you’re not sure, it’s best to check as some umbrella companies try to break the tax rules.

“You may be at risk. But if you understand how umbrella companies work, you can take steps to avoid these risks.

“Read our guide to what it’s like to work through an umbrella company and how you’ll be paid.”

I don’t know what’s worse, HMRC’s attitude or the fact that forcing genuine contractors to work PAYE is a much more expensive way to engage flexible workers.

So along with impacting contractors, HMRC is wasting taxpayers’ money.

Seb Maley, CEO qdos

“Where do you start? The less said about how HMRC has handled the off-payroll working rules the better,” says Seb Maley, Qdos CEO.

“On one hand, the tax office tells businesses that this reform will have little impact. Then when it comes to it, HMRC has banned contractors. It’s hypocritical – a case of ‘do as I say not as I do’.” 

Maley says, “It’s no secret that many businesses have needlessly stopped engaging contractors because of the off-payroll working rules.”

But instead of leading by example and showing others that these rules are perfectly manageable, Maley believes that HMRC is “insisting that all contractors work on the payroll.”

“I don’t know what’s worse, HMRC’s attitude or the fact that forcing genuine contractors to work PAYE is a much more expensive way to engage flexible workers. So along with impacting contractors, HMRC is wasting taxpayers’ money,” says Maley.

  1. Phil M says

    So HMRC openly recognise and accept that umbrella companies are often breaking tax rules, why are they putting the onus on the employee for ensuring they don’t fall foul of one like that…
    It should also be noted that when IR35 was being implemented, some freedom of information requests by accountancy firms showed that HMRC were breaking some employment laws, and also lying to parliament about how much extra revenue the change would generate.
    So not only is this hypocritical, it’s dishonest, possibly illegal, and entirely disgraceful.
    HMRC should not only be ashamed of themselves, but should also be investigated to see if any of those responsible for the IR35 implementation, also have financial interests in any umbrella companies, I bet they do.

  2. Paul Newman says

    Umbrella companies invested a lot of time and money into lobbying for enforcement of IR35 legislation, so it’s unsurprising to see HMRC rewarding them for their investment everyone’s a winner after all, more cash for the likes of Brookson, more cash for HMRC, more contractors giving up and paying far less tax as permies…oh, that last one might not be a win.

    With so many private sector employers still taking the lazy “blanket inside” approach due to the absence of comprehension of IR35 rules within HR circles, it seems unreasonable to expect that a lumbering dinosaur like HMRC (not renowned for competence at the best of times) would somehow lead the way on enlightened hiring!

  3. simon more says

    it’s actually worse.

    Some government dept expect contractors to do on-call AND not get paid for it. They will give them time off in lieu, however, only if you get called out. So if you are called at 3.00am in the morning for 15 mins, they will give you 15 mins off in lieu !!] If you build up a lot of time they will then push back and not offer you time off. BE WARNED

    However, permanent staff, they get paid if they are on-call even if they don’t get called out, and extra money when called out

  4. Michael Wilkinson says

    If HMRC believes those workers are employees for tax purposes, why aren’t they HMRC employees, or is HMRC just evading employment law

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