Contractors deserve answers from HMRC to seven key questions about IR35 enquiries, following the introduction of its controversial new IR35 processes in May 2012. In fact, all taxpayers have a right to know that the taxman is investing its funding into activities that deliver a good return on investment.
All the evidence previously available about IR35’s enforcement suggests that the complexity and lack of clarity of the legislation leads IR35 to deliver a poor yield compared to other compliance activities. But HMRC is refusing to release data.
Through a legitimate Freedom of Information Act request, ContractorCalculator asked HMRC these seven questions:
- The number of taxpayers/service companies that have been sent IR35 enquiry letters during the 2012/13 tax year?
- Out of this above total, how many of the enquiries had been ignored or not responded to by taxpayers/service companies?
- How many enquiries were closed down because the taxpayer/service company was considered by HMRC to be outside IR35?
- How many enquiries were closed down because the taxpayer/service company accepted that they were inside IR35 and made salary/deemed payments accordingly?
- How many enquiries remain active and are being investigated further for IR35 compliance?
- How many enquiries remain open, have been judged by HMRC to have been inside IR35, with demands for additional taxes being issued?
- For question 4, what are the total sums of additional income tax and the amount of additional National Insurance Contributions (NICs) paid by those investigated under the IR35 legislation?
HMRC’s response was to withhold the data, citing Section 22(1) of the Freedom of Information Act. In its response, HMRC provided the detail of Section 22(1), which reads:
Section 22(1) FOIA applies if 3 conditions are met:
a) There was an intention to publish at the time the request was received; and
b) It is reasonable to withhold the information until the planned publication date, and
c) It is not in the public interest to disclose the information.
In justifying its decision to withhold the IR35 enquiry data, HMRC took into account the following factors:
- There was an intention to publish the data at the time of ContractorCalculator’s request
- It is reasonable and in the public interest to publish the data, but HMRC considers that “the interest will be met by our planned future publication”
- Having decided to publish the data, HMRC believes that it should make its “own arrangements to do so”
- Providing the data to ContractorCalculator could be construed as unfair, and it is “reasonable for the information to be disclosed to everyone at the same time”
- “Premature disclosure could undermine any relevant pre-publication procedures, such as consultation with or pre-disclosure to particular bodies.”
HMRC has clearly demonstrated that it believes it has the right to disclose data about IR35 enquiries at a time and place of its own choosing. But it is not acceptable for HMRC to manage news of such importance to all UK taxpayers in this way.
That’s because HMRC’s intended publication schedule could be far in the future, when contractors and other stakeholders need to understand the impact of the new IR35 processes now. Indeed, for many, their livelihoods may depend on it.
Contractors deserve answers to those seven questions about IR35 now, and not when HMRC decides it’s time.