HMRC suffering from capacity issues

Tuesday 31 March 2015

HM Revenue and Customs (HMRC) is struggling from a capacity problem, which is limiting its ability to enforce IR35.

Minutes released by the IR35 Forum covering a meeting from February 11th claimed that at any one time HMRC is only able to deal with 250 cases.

It was also revealed that thanks to the new approach to compliance interventions, there was an increase in the number of IR35 enquiries taken up in the tax year 2012/2013. What's more, the number of enquiries opened and the compliance yield in any given year will not match, as the yield often relates to the enquiries opened in a previous 12-month period.

With just 250 cases capable of being dealt with by HMRC at any one time, questions are undoubtedly being raised about HMRC's ability to enforce disguised employment legislation.

Nonetheless, minutes from the IR35 Forum indicate that any plans to disband the rules are far off.

Indeed, the minutes said that HMRC has confirmed that guidance on the Employment Intermediaries reporting requirements is due to go live - suggesting that IR35 will continue to exist, at least in the immediate future.

What's more, HMRC has said that it will be taking up several recommendations from the IR35 Forum on the Contract Review Service (CRS).

This includes an agreement that should publicise CRS better and make it clear that this is a confidential service. HMRC will also think about publicising CRS on its web pages relating to non-statutory clearances.

As part of the CRS service HMRC reviews the contract and ascertains the relationship between the client and the worker.

During 2013, HMRC received 80 contract review requests and was able to give an opinion on 12. In 2014, the number of contract review requests fell to 64 but the number of opinions given raised to 16. Ten contracts were considered to not be caught by IR35 in 2013 and two were thought to be caught. In 2014, 14 contracts were thought not be be caught by IR35 and two were considered caught.

IR35 enforcement activity is clearly continuing, despite capacity problems and until an alternative is found to tackle false employment it is likely to remain in place.

However, HMRC will soon carry out and publish a detailed assessment on the costs taxpayers incur from IR35.

By Victoria McDonnell

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