HMRC Contractor IR35 Test Loses All Credibility After Huge Court Defeat

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HMRC Contractor IR35 Test
HMRC Contractor IR35 Test

HMRC Contractor IR35 Test

The HMRC Contractor IR35 test which purports to show whether a contractor is inside IR35 or outside has now lost all credibility.

At the same time, those at HMRC who created the test have lost all credibility too.

Recently, HMRC decided a contractor was inside IR35. So they investigated him and took him to court.

They believed that Mr Wells, a contractor was inside IR35 on all of the three main determining IR35 Factors. These are:-

  1. Right of Substitution
  2. Mutuality of Obligation
  3. Supervision, Direction and Control

They thought that they had a 3-0 win here.

Judge backs Contractor in IR35 Case

However, the judge decided the opposite. She decided that the score was the very opposite. She gave the verdict as 3-0 to the IT Contractor.

And these are the people who believe that their knowledge of which contractors are caught by IR35 is so great that they could create the definitive tool, with questions and answers, which would decide if freelancers are inside or outside IR35.

Indeed, when the Government changed the IR35 rules in the public sector, HMRC told Government departments that they should use this HMRC Contractor IR35 test to see if contractors are inside or outside IR35.

Self Employed IR35 Test Scores

With more than half a million self employed now having sat the IR35 test the score is as follows:-

54% – passed test

31% – failed test

15% – undetermined

You would expect that Government hirers would not take a chance on those whose IR35 status was undetermined after the test.

So, you could safely say that they would allow 54% to continue to use their limited companies and 46% to have to pay the IR35 tax or operate through an umbrella company.

Contractors Operating Outside IR35

These are all freelancers who believed themselves to be outside IR35 and operated previously through limited companies.

As regards this case, one has to ask how could HMRC have got it so badly wrong?

And what does that mean for the IR35 test tool that they have created?

The answer is that the HMRC Check Employment Status for Tax test has no credibility left at all.

Contractors Inside IR35 and Outside IR35

The people who created it appear to have little understanding of who is inside IR35 and who is outside.

Indeed, HMRC have a vested interest in the result so they should have recused themselves from its creation.

That’s what anyone on any board up and down the land would do in matters where they have a vested interest in the results.

They obviously believed that Mr Wells would overwhelmingly failed their IR35 test.

Instead, according to the judge he overwhelmingly passed on all three counts.

HMRC Misunderstanding of IR35

HMRC appear to have a basic misunderstanding of the IR35 laws.

Since IR35 came in they have fought hundreds of cases at various tribunals and courts. Yet they have only won 12 cases since the millennium.

So, why are people who get it so badly wrong time after time allowed to create a definitive IR35 test.

It is causing thousands of contractors who are legally outside IR35, according to this judge’s verdict, to pay tax they shouldn’t have to.

Contractors Paying Too Much Tax

According to HMRC 58,000 extra contractors are now paying an average of £7,000 more tax and national insurance each.

Many of these are doing this after sitting and failing the dodgy HMRC Contractor IR35 test.

The IR35 tax was brought in during 1999 to catch those contractors who were leaving permanent jobs on the Friday and starting the same job again on the Monday as contractors.

That’s all it was for.

The law has succeeded. Companies no longer do this.

HMRC and Government Wanted Contractors Money

However, the Government and HMRC, saw the extra money they were getting from contractors accidentally finding themselves in this net. So they wanted more.

However, this judge showed that the Government and HMRC have got his very badly wrong.

The people who do not really understand the IR35 tax and the Government and HMRC. It was created to stop contractors going from permanent employee to contractor at the same firm doing the same job.

That’s all. That was its sole remit – and the IR35 laws have not changed since 1999.

Illegal Taxation of Contractors

This illegal taxation of contractors should stop right now.

This extremely dodgy HMRC Contractor IR35 test should be scrapped right now.

Its replacement should be created by a panel who DO understand IR35 and DO understand the law.

It should be a judge with experience in Employment Law who should head the panel which will create a new test.

Contractors Group IPSE

IPSE, the main group who represent freelancers should insist on his.

I don’t know whether MR Wells has sat HMRC’s test but I bet if he has, or did, he would fail it.

This would be the ultimate blow to HMRC’s IR35 test’s credibility.

The Government have now started a consultation period over their plans to implement their reforms to IR35 in the private sector too.

This is likely to happen in April 2019 or April 2020.

Proper Legal IR35 Test

This should NOT be rolled out until there is an IR35 test which people who understand the IR35 law have created. The people who should create it should have no vested interests and must have a legal background.

It should NOT be created by people who thought that this contractor was inside IR35 on all three major IR35 Factors – when it turned out that legally he was OUTSIDE all three.

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Luckily, this contractor had IR35 Insurance and so was able to fight the case.

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