Contractors are at risk of suffering ongoing uncertainties over their tax and IR35 status due to HMRC’s planned £1.6bn budget cuts. A report by the National Audit Office (NAO) reveals that, despite defining a clear vision, HMRC has not “sufficiently defined the business performance and customer service it intends to achieve.”
The NAO’ also states that HMRC “has a limited understanding of the link between the cost and value of its activities” and as a result “has restricted its ability to assess fully the impact of cost reductions on business performance.”
Both the forthcoming budget cuts and the “limited information on the cost of [HMRC’s] end-to-end processes and on the cost of servicing different customers groups” could impact on the work of the IR35 Forum as it considers how IR35 might be better administered. Delay in improvements to IR35’s administration will leave contractors in a state of ongoing uncertainty.
Furthermore, the plans to lose 10,000 experienced staff and the closure of many regional offices between now and 2015 could seriously hamper efforts by HMRC to establish specialist compliance teams who are expert in IR35 and its consistent enforcement.
HMRC’s lack of historical cost-benefit data came to light after its response to a Freedom of Information Act request by ContractorCalculator revealed that it “does not hold” data about the costs of individual IR35 investigations. HMRC’s response also highlighted that recording the time spent by officers on individual cases was only introduced in April 2010.
The NAO’s report suggests that HMRC “faces a significant challenge” in increasing tax revenues, cutting costs by £1.6bn over the next four years and reducing welfare payments, all at the same time as improving customer service.
Although HMRC “recognises the challenges it faces in delivering its plans”, it has not yet completed these plans, nor tested some of the assumptions it has made about where it intends to find cost savings.