HM Revenue and Customs (HMRC) has been severely criticised for its aggressive approach regarding the off-payroll working rules.

The IR35 reform that has been introduced in the public sector in April 2017 has been singled out by professional contracting agencies and taxation bodies for unfair assessment of self-employed individuals.

Recently the Independent Health Professionals (IHPA) has accused the taxation body of deceiving the public as well as the Government in claiming that IR35 rules have not resulted in the engagement of contractors in disguised remuneration schemes with umbrella companies.

Details of IHPA’s Allegation against HMRC

The association for health professional has provided written evidence against HMRC to the inquiry of 2018 draft Finance Bill carried out by the Finance Bill Sub-Committee.

The evidence includes a copy of an email dated May 2018 sent by HMRC’s Mark Frampton to a senior official of NHS Improvement. The email addressed to Martin Innes was obtained by a request to the NHS provider through Freedom of Information (FOI) request.

In the email, Frampton had acknowledged that the IR35 rules have resulted in increasing number of contractors engaging in schemes to avoid paying taxes. The IHPA has accused the taxation body of withholding this acknowledgement from the public.

Frampton had stated in the email that the HMRC had heard that some medical staff were sold tax avoidance schemes such as ‘contractor loan’ and other complex schemes. The acknowledgement by a senior official has raised questions about the integrity of the taxation body that has so far denied the failings of IR35 reform rules.

The allegation by IHPA represents a major blow to HMRC that just last month had been criticised for actively encouraging blanket IR35 assessment of temporary staff.

The email demonstrates that HMRC is aware of the shortcomings of the off-payroll rules. Despite this, the taxation body has been boasting about the success of the reform rules.

The taxation body did not address concerns raised during the IR35 consultation about increased engagement in tax avoidance loan schemes.

The allegation comes around five months after the implication of NHS trusts hiring temporary workers through the Direct Engagement Scheme (DES). The use of the scheme had increased following the implementation of IR35 reform rules.

The fact is that the off-payroll working rules implemented in the public sector have resulted in a disastrous effect. There has been a significant reduction in the workforce with records from the Office of National Statistics (NOS) prepared by Worklab showing a decline of nearly 21,000 medical professional this year as compared to 2017. The statistics portend the expected negative effects of the IR35 rules when extended to the private sector in April 2020.