HMRC has confirmed it has a 45-member team dedicated to scrutinising IR35 cases, sparking commentary from Rebecca Seeley Harris and Dave Chaplin on the broader implications of this figure and why it might fall short of the mark, as reported by AccountingWEB.

According to law firm Pinsent Masons, HMRC’s specialised compliance unit, which focuses on investigating IR35 cases, comprised 45 staff members for the fiscal year ending 5th April 2024.

Data provided by the department reveals that the team also benefits from additional manpower and resources to address the intricate and, at times, contentious arrangements under IR35 regulations, where individuals are remunerated as self-employed contractors rather than employees.

HMRC contends that this has resulted in underpayment of income tax and national insurance, with past IR35 inquiries involving high-profile figures like Gary Lineker, whose case underwent a tax tribunal process over disputed taxes amounting to £4.9 million.

Steven Porter, Partner and Head of Tax Disputes and Investigations at Pinsent Masons, opines that the size of the specialised team “shouldn’t be surprising,” highlighting HMRC’s clear intention to maximise tax revenues in this domain.

HMRC “has now built a lot of bandwidth that allows it to undertake more investigations,” Porter remarked.

Expanding IR35 Efforts

In conversation with AccountingWEB, Rebecca Seeley Harris, an expert in employment status and IR35 at Re Legal Consulting, observes that it “undoubtedly indicates HMRC’s intensification of efforts,” while emphasising that HMRC’s focus extends beyond IR35 or off-payroll working (OPW).

“They will also be looking at other ways that businesses engage people working off-payroll in general,” she noted. “However, the size of the team is probably indicative of the caseload that HMRC has in terms of their compliance activity.”

Seeley Harris highlights the protracted nature of such cases, stating that they “take years from the initiation of the informal review on self-employed workers in general to going through the tribunal system.”

Lucrative yet Time-Consuming

“It’s not a quick win for HMRC but it’s probably going to be quite lucrative,” she added.

For the taxpayer, whether it’s an individual under IR35 or whether it’s the business responding to the compliance check under OPW, it takes far too long. HMRC definitely needs to have a better system for establishing employment status themselves.

“In my experience, some of the HMRC caseworkers do not have enough experience or understanding of this very complex topic and there should be time limits on how long a case can be kept open without a Reg 80 determination.”

A Need for Expansion

Based on my experience dealing with HMRC under chapter 10 enquiries, it probably takes about one week for the very basic check, assuming the firm is conducting compliantly. So, one person might be able to do 40 per year. 45 people could do 1,800 per year.

“There are about 45,000 medium and large businesses.

“Therefore, it will take 25 years to get around to checking everyone, even for the most basic checks.

“It would be better for UK Plc for HMRC to check every relevant company at least every four years. So, they need about 300 people.”

What is IR35?

Commonly known as ‘IR35’, the regulations regarding off-payroll working ensure that a worker, sometimes referred to as a contractor, pays a similar amount of Income Tax and National Insurance as an employee would.

These regulations come into effect when a worker, operating through their own intermediary, would have been deemed an employee if they were providing services directly to the client.

These regulations may impact you if you fall into any of the following categories:

  • A worker providing services through their intermediary to a client.
  • A client receiving services from a worker through their intermediary.
  • An agency or another supplier facilitating workers’ services through their intermediary.

Distinct regulations apply to individuals working for small businesses compared to those working for medium or large-sized businesses.

The client, also referred to as the engager, hirer, or end client, is the individual or entity receiving or will receive the worker’s services.

A worker affected by these regulations may deliver their services through various means, including:

  • A limited company, commonly known as a personal service company (PSC).
  • A partnership.
  • Another individual.

While not explicitly defined in law, a PSC typically refers to a limited company that the worker controls and has some vested interest in, through which they provide their services.

For information on how IR35 regulations affect your business, please contact us directly as all advice and information given in our articles is general.