IR35 Update: Are HMRC Retracting Sector Specific Guidance?
We understand that HMRC are currently reviewing sector specific guidance on employment status, with the view of withdrawing guidance which is not aligned to current case law, or may contribute to confusion when considered alongside more general guidance.
This announcement is likely to raise concerns within organisations that have come to depend on HMRC's guidance as a reliable resource and it does now beg the question, to what extent can HMRC's resources be considered dependable?
The effectiveness and reliability of the Check Employment Status for Tax (CEST) tool has been called into question, notably highlighted by instances with various Public Sector Authorities being fined by HMRC due to misclassification of contractors, following the use of CEST. Now, HMRC is contemplating the withdrawal of guidance that many organisations have relied upon, without offering a clear directive moving forward.
It is a reasonable expectation of HMRC to establish a definitive cutoff point and announce a specific date beyond which such guidance should not be applicable. This approach would provide a sense of certainty and demonstrate that HMRC is cognizant of the potential adverse effects of altering their stance.
We firmly believe that HMRC should furnish some form of assurance. Namely, if contractual agreements and working practices adhered to HMRC's guidance during the timeframe it was applicable, organisations should be safeguarded from any retrospective liabilities up to a certain defined juncture. This protection would remain in effect until the guidance becomes obsolete.
HMRC did not offer such guarantee when it removed the guidance on Locum Pharmacists in June 2023 and it remains to be seen if they will provide such assurance in the future. All this further demonstrates that organisations should consider bolstering their internal compliance mechanisms and strategies. Over-reliance on HMRC tools and directives can be fraught with potential challenges and exposure. This situation serves as a stark reminder of previous instances, such as the Loan Charge scandal, where HMRC altered its approach and sought to retrospectively recover unpaid taxes from people who had been paid via disguised remuneration schemes. In most cases, the people caught by the Loan Charge did not know that operating in such a way was illegal.
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