25 April 2024

Off-payroll working (IR35) has been a contentious and sometime complex area for many payroll professionals to stomach. With some criticising HM Revenue and Customs (HMRC) of ‘throwing its weight around’ when it comes to ensuring compliance and tribunal cases.

In HM Treasury minutes, an official government response to recommendations made by the Committee of Public Accounts, some details have emerged about ongoing and past litigation in relation to IR35 cases.

The committee recommended that HMRC “provide to the Committee the number of active litigation cases for IR35 and the amount of tax at risk.”

This recommendation was accepted and the following response has been given:

“Employment status is usually straightforward to determine and uncontroversial, but some cases are more complex or finely balanced and may result in a dispute between the 30 taxpayer and HMRC. HMRC aims to resolve disputes by agreement with the taxpayer, without the need for litigation; however, where the taxpayer and HMRC cannot reach an agreement, the taxpayer has a right to refer the dispute for determination by the First-tier Tribunal.

“HMRC makes decisions on litigation in line with its published Litigation and Settlement Strategy.

“As disputes are costly for both HMRC and its customers, HMRC will not usually persist with a tax dispute unless it would secure the best practicable return for the Exchequer and HMRC has assessed its case as being one which it believes would be successful in litigation. HMRC will take account of the tax at stake in the case and also the potential liabilities of other customers where there is the potential for wider impact.

“Since 2000, when IR35 was introduced, the First-tier Tribunal and its predecessor, the Special Commissioners, have heard 44 cases. The number of cases heard represents a very small proportion of the number of individuals whose employment status HMRC examined to consider whether they were within the scope of the IR35 legislation.

“As at the end of March 2024, there were 26 active appeals, of which 20 were awaiting listing for a substantive First-tier Tribunal hearing. This compares with the total number of 2,012 cases the First-tier Tribunal heard in 2022-23 (Table 16 of HMRC’s Tax Assurance Commissioner Annual Report 2022-23).

“For all 26 cases, the tax under dispute totals approximately £13.6 million. 4.13 Since 1 January 2020, HMRC has won over 70 per cent of employment status and IR35 cases. This includes two decisions handed down in HMRC’s favour.”

It is understandable that efforts are made to resolve situations prior to tribunal, courts should be used as a last resort where possible. However, it seems there are a number of cases where HMRC is reluctant to pursue action due to the cost of litigation. Do you think this isa positive thing for businesses, or does it throw more doubt on the application of IR35 rules and HMRC’s ability to defend them in court?

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