By Mark Rowland IR35IR35: new guidelines leave accountants wanting more clarity22 Feb 2021 HMRC has updated its guidelines around IR35 changes in response to industry concerns. But accountants report more is needed.The Supreme Court’s ruling on Uber’s classification of its drivers has put contractor use in the spotlight again, in the same week that HMRC released its updated guidelines around the upcoming changes to IR35 rules.The changes were set to come into force in April 2020 but were postponed due to the pandemic. In that time, HMRC has listened to criticisms and concerns from accountants and advisers, updating the guidelines in response to this.But despite the updates, accountants still have concerns around how this will be applied. Common concerns include:CEST: HMRC’s classification tool is generic, so does not address the nuances across different sectors. Businesses cannot rely on it alone to ensure the status is correct and hold up against any challenge.Mutuality of obligation (MoO) is still not considered in HMRC’s assessments. This approach has been discredited in numerous court cases. The assumption within the CEST tool is to assume that MoO is present, which isn’t always the case.Substitution is still a grey area. This is often thought of as a ‘silver bullet’, but it isn’t from HMRC’s perspective; CEST does not depend on the occurrence of substitution and someone can still fall outside IR35 without it.We asked accountants and advisers what they thought of the new guidelines and where they headaches may lie for accountants and their clients.HMRC are making the same mistakesAndy Vessey, Head of Tax at Kingsbridge Contractor Insurance.For sometime now, HMRC have not acted impartially as they are required to do and that is scandalous. In the 2006 Special Commissioners case of Lewis t/a MAL Scaffolding v HMRC, the judge criticised the department for the way they handled the status enquiry in a less than objective manner, saying “They, HMRC, appear to have approached their investigations on the basis that there must be an employment relationship between MAL Scaffolding and the workers there if one looks hard enough. Officers then went looking on that basis & persuaded themselves that they had found that for which they went looking. They have totally failed to persuade me.”Unfortunately, history is repeating itself and HMRC are back to their bad old ways. In an act of sheer defiance, it continues to ignore MoO, but at their peril as they recently discovered in last year’s judgment handed down by the Upper Tribunal in Professional Game Match Officials Ltd v HMRC. Yet still they refuse to attach any degree of weight to this test.The right of control test consists of four sub-elements. Protracted arguments can ensue with HMRC over whether or not an end client has a sufficient degree of control over the worker to create a master-servant relationship.Advisory approach: When considering whether or not IR35 applies it is necessary to consider the contractual and working arrangements, the briefing confirms that the actual working practices are of greater importance. Just a pity the department doesn’t heed its own advice as their aggressive and stubborn approach in enquiries over recent years has caused them to argue against the working practices and place emphasis on the contractual arrangements when this suits their argument.Verdict: HMRC needs to change its approach and stop sticking to disproven arguments.CEST can work, but we need more clarityJames Poyser, CEO of inniAccounts, founder, offpayroll.org.ukContractors are the life blood of our economy. They deliver imperative change that keeps UK PLC innovating and progressing. Last year, in preparation for the reforms, we saw companies cut contractors out of the labour supply chain as part of risk management – better not to deal with contractors than get it wrong. We then saw U-turns when the reforms were delayed due to the pandemic, such was the strategic value they offered in times of uncertainty. And now those U-turns are being reversed again.I think if companies took a more strategic view of the reforms and the value contractors deliver for short-term projects they have the chance to be far more competitive than companies that don’t. We can see that contractors are using offpayroll.org.uk to find fair clients, and as a result companies who are getting it right are edging ahead of the competition and getting first choice of the cream of talent that’s out there. They will have the best people delivering their organisation’s short-term strategic goals.CEST has a bad reputation. Only 20% of contractors consider it fair and 75% believe third party tools are fairer to the extent that 86% would pay for their client to use one instead (Offpayroll.org.uk stats). But actually 52% of determinations using CEST are deemed outside, only 29% are inside and 19% are ruled ‘undetermined’.It shows that CEST can work in favour of contractors provided there is clarity on what constitutes being ‘outside IR35’ in the first place.Advisory approach: If working practices are sound then there is no need to ban contractors from the labour supply chain. Anyone involved in the procurement process should remember that CEST is a starting point and though it will be used by HMRC to build a legal case, it’s fine to use a third party tool to help validate things further.Verdict: With more clarity, CEST could work well to help businesses navigate the rules.IR35 is another needless burden at this timeLucy Cohen, co-founder, MazumaIR35 status is notoriously difficult to determine. Even HMRC get it wrong, having lost more tribunals on the case than they’ve won in recent years. So it’s quite the burden for employers to bear. Ultimately, HMRC are concerned about recovering tax and National Insurance and even though a ‘light touch’ approach has been promised, they’ll have little sympathy for companies who they don’t consider have made enough effort.Delaying things by another year doesn’t seem to have made people more prepared, especially because of other major events such as Brexit and the COVID-19 pandemic. Right now, this a just another burden placed onto businesses which they simply don’t need.Advisory approach: Encourage clients to prepare.Verdict: With the pandemic still raging, the timing is still wrong for most businesses.The information still isn’t clearDan Stopp, UK Accounting Manager at BokioThe primary issue with IR35 guidance remains the lack of clear and definitive information regarding what the implications of these rules are, and who exactly they concern.For instance, although the preliminary legislation implies that the liability for any unpaid PAYE and NIC lies with the client or the party closest to them in the supply chain – which is ambiguous in itself – it fails to outline the circumstances under which it is appropriate for HMRC to pursue and penalise the offending party.Controversially, upon determining employment status, the CEST tool does not take Mutuality of Obligation (MoO) into account. In short, MoO refers to an employer’s obligation to delegate work, and an employee’s obligation to complete it. Given its historic and widespread use in tax and employment tribunals, HMRC’s decision to omit this key factor remains a major topic of confusion and frustration.Nevertheless, HMRC defends its decision, claiming that all contracts have mutuality included or else they would not exist.Advisory approach: Having lost a number of IR35 tribunal cases, the government’s credibility and judgement of their own tax legislation are increasingly being called into question. To help avoid unpredictable legal battles in the future, HMRC must provide all parties with clear and stable regulation, which one could argue is still lacking, even with the CEST tool.Verdict: The clarity isn’t there – the IR35 changes will continue to be controversial.CEST results are too subjectiveChristina Nawrocki, Managing Partner at Wellers:The main issue with the CEST tool is that it can be subjective, and because every question works towards the end result, answering one question incorrectly could change your end result. As we know, HMRC says that it will not accept the result as a definitive conclusion as it’s dependant on how you answer the questions. This creates a lot of uncertainty about the tool, nothing new but still evident.Advisory approach: It’s now the responsibility of the engager rather than the worker to make the determination. We are seeing them send out questionnaires, like the CEST tool. We are also seeing engagers involve a third party to manage the processes, it’s time heavy and a burden on business.Verdict: The uncertainty is still present, making it very tricky for businesses to make determinations. Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.