Last week, the House of Commons Public Accounts Committee (PAC) held a session with HMRC to primarily review progress on the UK border and preparedness for Brexit. However, whilst they had Revenue high-flyers in the room, the PAC took the opportunity to quiz Jim Harra, Second Permanent Secretary at HMRC, over IR35 at the BBC.

Off-payroll rules timescale

The off-payroll rules took less than a year to implement from consultation in May 2016 to enactment of the legislation in April 2017, but why the hurry?

Harra trotted out the typical unscientific HMRC claim that the Exchequer was losing around £700M a year due to IR35 non-compliance, so time was of the essence. Rather than struggling with the burdens and obstacles that the new rules brought with them, the public sector coped “pretty admirably” with them according to Harra. This is probably because HMRC coached public sector bodies and helped rake in around £500M in the year 2017/18, which is what the Revenue believe the figure to be.

Going back to 2004, HMRC had concerns about the status of some BBC presenters. That being the case, then why did it take another 13 years to shift the IR35 burden to the engager? Here, I can sympathise with Harra, as he confirmed that the original IR35 legislation was not what HMRC wanted. Having spoken with numerous HMRC officers over the years, I know that the department considered the legislation as clumsy in the same way the contracting industry does. HMRC had to deal with the hand they were dealt until such time it was able to persuade the Government to change tack.

If then, such a short timescale was adequate for the public sector and the off-payroll rules are running like clockwork, why has the private sector been given more time?

A caring and understanding Government has listened to the concerns of the private sector about the complexity of the task ahead, that’s why. Nothing to do with the fact that MTD for VAT and Brexit are moments away then, and it’s all hands to the pump to deal with these issues??


Both the Beeb and other public authorities only had two months exposure to the CEST tool before it went live in April 2017 but Harra explained that HMRC had been working with the public sector for some considerable time before that. During that time, organisations had seen the status tool in various versions. This apparently worked just fine for the majority of the public sector but, of course, HMRC provided lots of coaching too - I mean support!

During the period August 2017 – June 2018, the BBC put 663 on-air freelancers through CEST which confirmed 92% were inside IR35. Contrast this with pre-April 2017, when the Beeb were happy with the self-employed status of the majority of on-air workers. Why such polar opposites of opinion given that there had been an ongoing dialogue with HMRC for many years about the status of its workers?

Harra explained that HMRC had concerns about the tax treatment of BBC presenters going all the way back to 2004. Nevertheless, the Radio Industry Guidelines 2008 and the CEST tool give the same result if applied correctly. This then would betray the shortcomings of CEST because the guidelines only require a majority of ten conditions to be satisfied, most of which surround control and not one concerning personal service, to indicate that a Radio Presenter/DJ is self-employed. However, the guidelines do go on to list a number of grades where self-employment is accepted within the radio industry.

“I won’t have it” I can hear Harra exclaim in my mind’s eye as he proclaims CEST as being a “high-quality tool”.

During 2017, HMRC ‘engaged’ (does Harra mean coached??) with the Beeb to help them use CEST better and, coincidentally, the number of contractors found to be inside IR35 rose! The average rate of indeterminable results thrown up by CEST is approx. 15% but once HMRC got its teeth into the BBC, the corporation got its response rate up to 100%. Now there’s a thing!

CEST is not mandatory, despite some engagers still being under the misapprehension it is. Those choosing to regard it as the holy grail, Harra confirmed that HMRC will not challenge or question the result it gives provided the questions have been answered honestly. That is not the truth of the matter because he then went on to say that the department ‘test’ the results. How do they test the results – by questioning and challenging the end client of course! I’ve had first-hand experience of this, so let us not be under any illusion that HMRC will accept a result of outside IR35 purely at face value. When it suits them to delve a little deeper, then they won’t hesitate to do so.

Harra claimed that the tool is continually updated as new tribunal and court decisions are made as well as increasing its scope, meaning the whole process is perpetual. Given that HMRC regularly choose to ignore First-tier Tax Tribunal decisions that are in favour of the taxpayer, could it be that HMRC are/will be very selective as to which tribunal decisions are reflected in their ongoing pursuit of perfecting CEST?

When quizzed on how many changes had been made to the status tool in the last 12 months, Harra could not give an answer.

During the testing of CEST, its results were reviewed by HMRC experts for accuracy. These experts are the same Revenue officers who, for the last few years, have been adopting a completely partisan and bias attitude during IR35 enquiries. Balance was sought, however, by also involving external stakeholders in the process.

Harra had to be asked the same question three times before he confessed that there was no threshold of incorrect answers that were tolerated before CEST was unleashed on the public but rather a tolerance of a threshold of cases where the tool gave an indeterminate answer. That was about 15% of cases but HMRC are committed to expanding CEST so that it gives more decisive results.

Our way or the highway

Tony Hall, Director-General of the BBC, had previously apologised to presenters for his corporation giving them no choice but to work via their own PSCs but Harra was uncaring and unmoved. As far as he is concerned, HMRC don’t regulate or control the use of PSCs (but they do legislate against them) and so, pre-April 2017, the IR35 buck stops firmly with the contractor. However, if the BBC wish to settle IR35 tax and NIC liabilities on behalf of the 100 presenters that the Revenue investigated prior to 2017, then HMRC are not averse to such a global settlement.

Stand and deliver

The PAC said that they had received evidence from BBC freelancers that they been pursued aggressively by HMRC, with some of them receiving numerous text messages ordering them to contact the department otherwise the bailiffs would be sent round. Harra neither recognised such messages or the idea that HMRC uses bailiffs.

Compliance model

Since 2017, HMRC has carried out audits on a number of public sector bodies to understand how they have used the tool (despite it not being mandatory, let us not forget) and whether the results were sound.

When asked what record keeping systems the average public sector body should maintain to support status decisions, Harra said that they need to have systems and processes in place that will withstand HMRC scrutiny. HMRC will look at:

  • the process that an end user follows to ensure they are feeding the right facts into CEST;
  • whether those at the coalface are being consulted to find out exactly how contractors are managed in practice; and
  • whether the end user is learning from the results and essentially taking reasonable care.

During the proceedings, Harra did at least make it clear that the use of a PSC is not a contrived tax avoidance scheme. Any remaining sceptics who still want to tar contractors with this brush, please take note.

The full transcript of the HMRC Progress Review session can be found here

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