By Marcus Leach

The Recruitment and Employment Confederation (REC) has warned that HM Revenue and Customs (HMRC) is struggling to cope with its current workload and may not be able to better implement IR35.

As the Chancellor decides which recommendation from the Office of Tax Simplification to follow in reforming IR35, recent evidence suggests that HMRC may not have the resources to deliver stronger enforcement, as one recommendation would require.

An ongoing inquiry by the House of Commons Treasury Committee has revealed significant concerns amongst the business community about HMRC’s performance, whilst confidence will be further hit by the recent admission that the tax office does not even hold the necessary data to predict the impact of any changes to IR35, the self-employment tax rules.

This raises serious questions about the suggestion from the OTS that IR35 should be left as it is, with HMRC relied upon to administer it more effectively. Evidence given to the Treasury Committee has revealed that HMRC is often only able to answer 40 per cent of the calls it receives

Explaining the REC’s concerns, Gillian Econopouly, Head of Public Policy, said:

“With a further 15 per cent cut already planned to their budget, it seems highly unlikely that the Revenue will be able to provide the added scrutiny that would be required if IR35 were simply left in its current state, as the OTS has proposed.

“Even more worrying is the recent admission in a Freedom of Information response that HMRC does not hold data on the costs of pursuing IR35 enquiries and tribunals, and even has only limited data on the additional revenue generated by IR35.”

She added: “If they cannot say how much the tax brings in, or how much it costs to enforce, how can there be any confidence that HMRC can step up their game and turn around this failing system?

“They are clearly already struggling under a heavy workload, which the Treasury should be looking to relieve rather than add to. Both other options given by the OTS for IR35 reform - either suspending it altogether, or creating a clearer business test to automatically exempt large numbers of freelancers from the system - are far more workable, sensible solutions for this long-running problem that would allow HMRC to focus its resources more effectively.”