'HMRC's heavy-handed approach to IR35 is proving unsuccessful'

You will have done well to avoid the fallout from HMRC’s decade-long, and ultimately unsuccessful, pursuit of Loose Women presenter Adams over an alleged IR35 tax liability.

The case against Atholl House Ltd, the company Adams contracts through, has been a near constant in the background as HMRC has campaigned for, created and enforced the off-payroll working rules.

Its resolution is an important development, one that may well have enduring repercussions for contractors and the businesses engaging them. But it also highlighted the ineptitude and inflexibility of the tax office. 

History of IR35

Before I dive in and focus on the wider implications of this case, I’ll bring you up to speed on IR35. 

The legislation was introduced in 2000 to bring an end to perceived tax avoidance by contractors who, in HMRC’s opinion, were operating as "disguised employees" and therefore should have been on the payroll and subject to employment tax. 

Until 2017, contractors were responsible for determining whether they were ‘inside’ or ‘outside’ of IR35 in their engagements – in other words, caught by this legislation. 

But following the introduction of the off-payroll working rules in the public sector in 2017, and 2021 in the private sector, that is broadly no longer the case.

The responsibility has been shifted to the business engaging the contractor, with the liability passed to the fee-paying party in the supply chain. 

The rules themselves are deeply flawed, but this isn't helped by HMRC’s approach to policing them.

Despite the rule changes, HMRC retains the right to retrospectively investigate contractors, dating back to a time when they held the liability. 

Needless to say, the tax office is still working its way through many historic cases. 

Up until recently, this included the Adams case. Adams was investigated by HMRC almost a decade ago and eventually accused of incorrectly operating outside the scope of the rules when engaged by the BBC between 2013-14 and 2016-17. This accusation carried with it a £124,000 tax liability.

In its desperate pursuit of this money, HMRC spent 10 years dragging Adams up and down the UK’s tribunal system, from First Tier to Court of Appeal and back again. 

Along the way, HMRC will likely have spent hundreds of thousands of pounds of taxpayer money and countless hours trying to prove that Adams had broken the rules. Except, as it transpired, she hadn’t – the presenter had been operating compliantly. 

So, what have we learned? Nothing new, necessarily. But this needlessly drawn-out IR35 saga reinforces some things that we already know and shines a spotlight on HMRC’s flaws. 

HMRC’s grasp of its own rules leaves a lot to be desired

First up is its inability to correctly interpret the off-payroll rules. The very rules it insisted on creating, enforcing and reforming.

The rules themselves are deeply flawed, but this isn't helped by HMRC’s approach to policing them. The targeting of high-profile broadcasting contractors – very often unsuccessfully – is proof enough of that.

The tax authority looked to make an example of some of the most recognisable freelance presenters in the industry, in the vain hope that it could score a landmark IR35 victory.  

Alongside Adams, the likes of Gary Lineker, Eamonn Holmes, Lorraine Kelly and Adrian Chiles have all faced protracted tribunal cases and public allegations of non-compliance. For the most part, they have won their cases. 

HMRC is more persistent than ever and can be heavy-handed.

These are just a handful of cases that have been and are being played out in public. Behind the scenes, there are dozens if not hundreds more that HMRC is progressing. 

First and foremost, the Adams case evidences that contractors can indeed operate compliantly outside IR35. 

In fact, having carried out well over 100,000 independent IR35 status determinations – for contractors, and the businesses engaging them – in our expert view, the vast majority of these workers belong outside the clutches of IR35. 

But HMRC can scrutinise any engagement at any time. Judging by recent and ongoing IR35 cases – involving contractors and businesses – the tax office is ramping up its activity across the board. 

Compliance, therefore, remains essential. HMRC is more persistent than ever and can be heavy-handed, as shown by the Adams case, among countless others. 

Seb Maley is chief executive of contractor insurer and IR35 legislation specialist Qdos