The PAC recommendations included a suggested “fast and independent process” for contractors to resolve disputes over status determinations. 

Based on a report by the National Audit Office, the PAC took evidence on 30 March 2022 from HM Revenue & Customs. The PAC then published its report on 25 May 2022.

The government responded last week, covering six key points from the PAC’s report.

An example of an ‘agree but argue’ major point from the PAC was: “We are concerned that it is too difficult for workers to challenge incorrect status determination.” PAC’s recommendation was that HMRC “should ensure there is a fast and independent process for contractors to resolve disputes over status determinations. As part of this, it should assess the extent to which workers are using existing appeals routes, and how well they are working”.

While the government agreed with the recommendation, it went on to argue that there were “established appeal routes for customers who disagree with tax assessments”. It went on to state: “The legislation creates an additional right for workers to challenge their employment status for tax determination with their client, who is required to respond within 45 days.” 

The government also noted: “The best result for workers, engagers and the Exchequer is where employment status is treated from the start. The government remains confident that the reforms to the off-payroll working rules were the best way to achieve this.”

The government went on to reference external research by HMRC into “the short-term impacts of the 2021 reform” and say that this will provide details “about the number of disputes clients are having with workers” about the status determinations. “This will be published, once completed,” it stated.

Commenting, Dave Chaplin, CEO of tax compliance firm IR35 Shield, highlighted that section, saying that the suggestion of “appeal routes” demonstrates “ivory tower thinking and is a firm departure from the reality of market behaviour on planet earth”. 

He continued: “To suggest a worker can seek to reclaim monies from an incorrect assessment via the self-assessment tax system is misguided, because the worker cannot reclaim the bulk of the deducted monies, which is employers’ National Insurance. Also, to suggest the worker can appeal to a tax tribunal is absurd, because the cost of doing so will far outweigh the tax and could take up to 10 years to resolve as we have seen happen. The government’s comments claiming there are ‘appeal routes’ is impractical nonsense and highlights the impediment to natural justice inherent in the IR35 Reforms.”

Other PAC recommendations:

• “HMRC should conduct and publish specific research into the impacts of the IR35 reforms on contractors and labour markets, to check it is being applied as intended and not adversely affecting employment opportunities.” The government responded that it agreed with the PAC’s recommendation but disagreed with their conclusion, and said they had already done and were doing research of this kind. Also, “HMRC is conducting internal analysis to identify off-payroll workers who may have been affected by the reforms, and what changes may have occurred in the labour market following the reforms. This will be published once complete.”
• “HMRC should review how the system is working and whether it can be made more efficient and effective…” The government said it agreed with the PAC’s recommendation and said it had already implemented a process to reduce the circumstances where it collects tax twice in respect of the same engagement in cases of non-compliance.”

Read the full six-page government response to the PAC’s conclusions and recommendations here.

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