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HMRC accused of suppressing IR35 stakeholder views on public sector contractor walkouts

Stakeholders are accusing HMRC of trying to suppress their take on how the tax avoidance reforms are affecting contractors, following claims their views were omitted from the latest IR35 Forum minutes

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HM Revenue & Customs (HMRC) stands accused of trying to suppress the opinions of third-party stakeholders about the impact the IR35 reforms are having on IT contractor attrition rates.

The accusation comes after the tax collection agency agreed to amend the minutes of the most recent IR35 Forum meeting, after attendees complained they were published without their approval and did not accurately document the discussion that took place.

Julia Kermode, CEO of the Freelancer and Contractor Services Association (FCSA), who attended the meeting on 17 July, confirmed to Computer Weekly the contents of the published minutes do not reflect the “full discussion” that occurred during the meeting.

“The minutes are an official document, designed to record the content of the meeting, and there was quite a bit of discussion about the problems that have arisen during the implementation of the IR35 reforms that is not reflective of that, for example,” she said.

The IR35 Forum meet on a quarterly basis to discuss the how the tax avoidance legislation is affecting contractors and taxpayers, with representatives from HMRC, the FCSA, the Association of Independent Professionals and the Self-Employed (IPSE), and other trade bodies and stakeholders all invited to share their feedback and insights.

Its most recent get-together on 17 July 2017 marked the first since the IR35 reforms came into force in April 2017.

Under the revised rules, public sector organisations now have responsibility for deciding whether limited company contractors should be taxed in the same way as permanent employees (inside IR35) or off-payroll staff (outside IR35).

Contractors were previously responsible for self-declaring their engagements, with the reforms ushered in as part of an HMRC-led clampdown against contractors who effectively abuse their off-payroll status to avoid paying PAYE and national insurance contributions.

A break from the norm

It is “common practice” for IR35 Forum attendees to get sight of the minutes ahead of publication, but stakeholders were afforded no opportunity to review them before they surfaced online late last week, the source continued.

Computer Weekly understands HMRC is now in the throes of requesting post-publication feedback from stakeholders about its contents, with a view to releasing an updated version in due course.

While the lack of approval is concerning for stakeholders, for many of the meeting attendees Computer Weekly has spoken to in recent days, the bigger issue is what is missing from the minutes.

Namely, insights from frontline stakeholders who used the meeting to share anecdotal accounts of how the rollout of the IR35 reforms has resulted in contractors leaving the public sector and delaying the projects they were previously working on.

“The intention with the meetings is always to be constructive, and sometimes there are disagreements, but the minutes have always – until now – reflected what’s gone on,” said a representative from one of the Forum’s regular participants, who spoke to Computer Weekly on condition of anonymity.

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It is further claimed an “explicit” request made during the meeting to minute a discussion about contractor attrition in the public sector was not sufficiently documented. HMRC did not directly address this point when Computer Weekly raised it with them.

Instead, what appeared in the minutes is a line stating, “HMRC has seen no evidence of significant impact on attrition rates of contractors working in the public sector,” despite stakeholders apparently sharing a number of examples to the contrary during the meeting.

Indeed, Computer Weekly has shared numerous accounts of public sector organisations who have seen contractors leave projects in the wake of the new IR35 rules coming into play, with the Home Office, HMRC, the UK Hydrographic Office and others all affected.

Furthermore, a Computer Weekly investigation into the impact of the reforms on public sector staffing levels, published in June 2017, suggests some departments lost up to 40% of their IT contractors in the wake of the IR35 reforms.

Changing the facts to suit the story?

The fact similar accounts shared during the meeting do not feature in the minutes has angered forum participants who claim HMRC’s summary gives a falsely positive impression about the impact the reforms are having on the public sector at large.

“[HMRC] said they haven’t seen contractors leaving and projects going on hold, but we have. We’re the stakeholders – the ones on the ground,” said Kermode.

“HMRC are slightly removed from the situation and practicalities, and I don’t know how their opinion should be allowed to overrule the opinions of stakeholders. It’s not made-up anecdotes [we’re sharing]. What we’ve seen is factual and HMRC can’t just dismiss it.”

IPSE chair James Collings shared a similar view in a blog post on 28 September 2017.   

“You would be forgiven for thinking [based on the minutes] that no public sector organisations have faced contractors walking out, and the subsequent delay of crucial projects at all,” said Collings.

“The reforms have, in fact, caused many contractors to turn their backs on the public sector entirely, and HMRC must be honest about the problems associated with this complex and onerous legislation.”

Cause for concern

Given the July meeting marks the first quarterly gathering of the IR35 Forum since the reforms came into force, Kermode said it was particularly concerning these insights were missing from the public record.

“The point is the minutes are a formal record and for a formal record not to be representative of a meeting – in this instance – is significant, because if there ought be a review ever into the effectiveness of the IR35 policy, these minutes will form part it,” she said.

When pressed for a response to the FCSA and IPSE’s take on the situation, an HMRC spokesperson appeared to play down the link between the IR35 reforms and the contractor walkouts.

“Contractors leave roles for a variety of reasons and are replaced – we have not been made aware of significant gaps in public sector recruitment,” they said.

This is the line HMRC has maintained for some time now, with the organisation telling Computer Weekly in early September that there is “no evidence” to suggest the public sector has lost IT contractors as a result of IR35, and – in turn – there have been “no delays” to IT projects.

Research into the impact of reforms

David Chaplin, CEO and founder of tax advisory service ContractorCalculator, told Computer Weekly his organisation has compiled 80 or so pages of accounts from contractors who have exited the public sector over IR35, as part of its ongoing research into the impacts of the reforms.

HMRC has repeatedly questioned the veracity of its findings whenever Computer Weekly has approached the organisation for a response to them, much to Chaplin’s chagrin.

“The only thing [HMRC] has ever acknowledged is there were ‘teething troubles’ around the implementation of the reforms, and that’s it,” he said. “What’s odd is there is overwhelming evidence that it didn’t go according to plan. There is no acknowledgement of that at all.”

“For them to say everything is completely fine is just crazy. It makes you think they’re going to make the story fit their agenda however they can.”

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