• IR35 tax rules ‘too complicated’ for HMRC staff to understand

  • 5 May 2017
  • Comments 2 comments

PRISM claims it has seen ‘at least a dozen’ instances where taxman has misled contractors over expenses entitlement

IR35 tax rules are so complicated that even HMRC employees are struggling to understand them, an industry body has claimed.

PRISM, the trade body for umbrella companies, said it was aware of “at least a dozen” instances of HMRC call centres mistakenly telling contractors they were entitled to expenses they were not.

PRISM’s chief executive, Crawford Temple, said this suggested that the tax system was too complex and subject to so much change that HMRC’s own employees were having problems understanding it.

“This is the most recent change to the tax legislation affecting contractors and the mistakes being made by HMRC are causing confusion and further tensions across the market,” Temple said. “This is more evidence, if any were needed, that the whole system of tax and employment legislation is too complicated for people to understand.

“If those within HMRC are giving the wrong advice because it is not clear, what chance does a contractor have who just wants to carry out sensible financial planning and get on with the job?”

The reformed IR35 rules, which came into effect on 6 April, mean public sector employers now need to deduct tax and national insurance contributions from contractors’ pay at source, rather than allowing them to defer and claim expenses.

The changes have already affected public sector staffing. The Financial Times reported last month that IT contractors were boycotting the sector amid fears many of those affected by the rule change could lose as much as 30 per cent of their take-home pay.

Julia Kermode, chief executive of the Freelancer & Contractor Services Association, said that while the association itself had not encountered specific cases of HMRC giving incorrect advice and information, it was “not surprising if mistakes are sometimes being made given the sheer complexity of changes and new legislation.

“It is all too easy for an error to be made if just one precise detail is omitted, misheard or misunderstood – the whole sense of the question, and therefore answer, can be lost,” she added. “Clear and transparent communication is vital so that the UK’s flexible workforce can get on with their jobs and people are not bogged down by administrative burdens that hinder them and work against them.  

“Mistakes shouldn’t happen, and HMRC should be playing its part too.”

Andy Chamberlain, deputy director of policy for the Association of Independent Professionals and the Self-Employed, said the recent changes to how IR35 works in the public sector had piled confusion onto taxpayers.

“The tax system is so complex that even HMRC officials are unable to provide accurate advice,” he said.

An HMRC spokesperson told People Management that its frontline staff had received guidance about all recent tax changes.

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Comments (2)
  • I'm all for simplifying the tax system so why don't contractors pay the same tax rates as employees. Much easier and no confusion plus a welcome injection of tax revenue for hard pressed public services.

  • When I went self employed, my accountant told me to avoid umbrella companies, because the revenue didn't like them. At the start of this year, I was working through one 'world' renowned agency, who told me that I my options were to go, employed by the college, be employed by the agency, or go through an umbrella company. I left the job. I do, however, contract into two colleges, one day per month, one of which has now said they won't pay any invoice until my IR35 status is resolved, the other hasn't even heard of IR35. I am owed money by one and both now have work piling up, as I am not prepared to carry out work for which I can't get paid for. I went through the HMRC ready reckoner and it clearly said they didn't know whether I am an 'employee' or not. The bottom line is that apprentices are not being signed off because I'm not carrying out the work, but I have a full time paid role so I'm not not earning.