Karen Clark

Written by: Sarah Saunders and Karen Clark

Karen Clark

Partner

IT issues mounting at HMRC as consultants quit following IR35

  • October 2017
  • 3 minutes

As promised last week and despite cynicism from the profession, HMRC has amended its software to calculate many more 2016/17 personal tax liabilities correctly. It has arrived on time, and so far, it is working, which is good to see.

There are, of course, still a few outstanding issues, but this is the case every year. The main question now is how long it will take HMRC to deal with any returns filed whilst the software was wrong. We will be monitoring our clients, but unadvised tax payers may wish to check whether their computations have changed. The main issue will be for those who filed using HMRC software, who may not be aware that their computations were miscalculated by HMRC. In addition, it is not clear whether existing computations in the system will automatically update or need HMRC intervention.

So why is HMRC having so many IT issues this year? There has been a strong push against individuals providing consultancy services such as IT advice via a personal company, rather than being treated as employed by the organisation where they work. This structure can reduce their tax bill, but has come to be regarded as avoidance, leading to the regulation known as IR35. The recent focus for this has been on consultants operating for public organisations such as the BBC, HMRC and the NHS, with a change in the law on 6 April 2017 requiring the employer rather than the consultant to determine each consultant’s IR35 status.

Allegedly, HMRC’s IT consultants were asked to develop software to identify consultants caught by the IR35 regulations and hence taxable as employees. Apparently when HMRC then ran their IT experts through the system they came up as liable to IR35, at which point a substantial number quit, similar to locums in the NHS, leaving HMRC short of IT resource which does not bode well for resolving current issues and future IT projects, including Making Tax Digital

It seems unfortunate to have tax laws in place which make the use of a corporate intermediary tax advantageous but even more unfortunate to suddenly remove an established tax status from thousands of key staff, risking losing their skills from the public sector. Ideally this situation should never have arisen but, as it has, to try to correct it without thought for the probable reactions of the consultants seems unwise.

For more information please comment below or get in touch with Sarah Saunders or Karen Clark.

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