HMRC updates ESM in wake of PGMOL, rescoping ‘IR35 battleground’
Contractors told it’s folly to overly focus on Mutuality and Control, unlike the ‘wider picture’ – where all future IR35…
Most OPW experts (including Kingsbridge) hope silence from Britain’s biggest business lobbyist means its card idea has been folded.
The CBI is declining to say if it will refire its “Green Card” proposal on IR35 in time for Spring Statement 2025 on Wednesday March 26th.
The UK’s largest employers’ organisation made the proposal to the Treasury ahead of October 30th’s Autumn Statement 2024.
According to a CBI paper dated September 2024 (a more up-to-date document was requested by Kingsbridge), PSCs seeking a Green Card would “apply to HMRC.”
‘Certainty of outside IR35 services’
Personal service companies qualifying for Green Cards could “provide certainty that their services are outside” the Off-Payroll Working (OPW) rules.
The CBI document adds: “A Green Card facility would simplify the process [and] ease pressures on businesses engaging contingent labour.”
“[It would also] expedite procurement [and] on-boarding processes to enable new supplier contracts to be signed more quickly.”
‘Tool to help identify outside IR35 suppliers’
The Green Card facility is not a flash-in-the-pan idea.
It was likely on the mind of the Confederation of British Industry (CBI) back in the spring of 2023.
Then, the “voice of business” called for a “new tool to help business understand if suppliers are outside the scope of IR35.”
‘CBI Green Card for IR35 simplification is a sensible solution’
Kingsbridge understands that the Green Card was tabled by an “Employment Taxes Group,” comprised of established trade bodies.
Other supporters of the Green Card include ‘big four’ accountant EY, where partner Steve Wade has described it as a “sensible solution.”
The IR35 simplification idea received a new lease of life earlier this month when IPSE cited it in its monthly column for trade portal ContractorUK.
In “IR35 is a barrier for growth that Rachel Reeves…can’t afford,” the contractor body wrote that, like the CBI, it wants IR35 addressed.
‘IR35 Green Card criteria not clear’
However, the Association of Independent Professionals and the Self-Employed has also called the criteria to obtain a Green Card “not clear.”
On its website, the association adds that it is unclear, too, how easy it would be to “convince” HMRC to ‘hand out the cards.’
Kingsbridge sought clarification from the CBI, twice.
But Britain’s biggest business lobbyist claims “capacity” issues prevent it from commenting.
‘APSCo broadly supports CBI’s IR35 Green Card facility’
Tania Bowers, Global Public Policy Director at the Association of Professional Staffing Companies, stepped in to clarify.
“As a CBI member, we were part of the employment taxes group that put together the Green Card proposal [to simplify IR35],” Ms Bowers began to Kingsbridge.
“We broadly support the proposal as it brings the importance of genuine self-employment — outside IR35 assignments — back into the spotlight.”
‘CBI wants to make it easier for employers engaging PSCs’
A source with experience lobbying government officials on IR35 echoed the green card linking to ‘not-OPW-caught’ assignments.
The source said: “CBI wants to make it easier for end-users to identify PSCs with characteristics which would more or less ensure any engagement would be outside IR35.
“It’s not lost on me that circa 1999, the CBI succeeded in convincing the government to move the then-proposed onus of IR35 off employers and onto intermediaries – the workers’ companies. It’s something the OPW rules have since modified.”
‘Details may vary from one role to another’
Ryan Dawson of Kingsbridge was uneasy upon being shown the two separate commentators hinting that the CBI Green Card would ‘green-light’ an assignment as B2B.
“HMRC and the courts stress the importance of considering the facts of an engagement, notably in ESM0556.
“To paraphrase, ‘not all details are of equal weight or importance in any given assignment, and they may vary from one role to another.’
“So CBI’s Green Card would have to be very specific to an engagement and have the holder’s industry or sector specified.”
‘Normally accepted self-employment conditions’
The Revenue’s “Film, Television and Production Guidance” is a framework that the Green Card could emulate, says Dawson.
Kingsbridge’s IR35 Project Manager continued: “HMRC’s film industry guidance says if an engagement’s description meets two conditions, including if the worker exercises control, self-employment is the norm.
“But ‘normally accepted’ — as the guidance states, tells you it’s still open to HMRC challenge.
“Ominously for the Green Card’s prospects, HMRC is unlikely in the current climate to commit resources to both providing a view on status and then policing it”.
‘HMRC doesn’t want the labour of IR35 pronouncing on myriads of contracts’
David Kirk & Co says the taxman making clear he wants to avoid the sort of workload that the CBI Green Card would impose thwarts its chances.
The founder of the specialist tax consultancy, David Kirk, told Kingsbridge:
“When HMRC introduced the Chapter 10 rules…they were quite explicit about not wanting the labour of pronouncing on myriads of contracts, because it would bog them down.
“That was why the procedure was introduced on April 6th 2021 for the [IR35 Status Determination Statement] appeal process to be client-led.
“And it’s why HMRC is now looking at how businesses decide employment status in more general terms, rather than trying to police individual contracts for IR35.”
‘HMRC processes to issue and renew IR35 green cards’
In backing the CBI’s Green Card last year, EY’s Mr Wade said he was conscious of the resources challenge it would pose HMRC.
“An issue would be HMRC needing the staff with experience to police it,” the EY partner acknowledged.
The Green Card would also require “robust processes” from HMRC around “issuing and renewing the card, to prevent overuse,” APSCo’s Ms Bowers yesterday told Kingsbridge.
‘Open door for abuse’
But it’s abuse, and not overuse, that makes the Green Card a difficult proposition for the tax office to sign off, says a former tax inspector.
“Managing IR35 is like trying to fit a square peg in a round hole.
“Yet I doubt HMRC would give a Green Card to businesses because it would be seen by the less reputable as an open door for abuse,” the ex-Revenue inspector, Carolyn Walsh told Kingsbridge.
‘IR35 insurer still receiving contracted-out questions’
On the contrary, specific businesses would make the most sense as Green Card recipients, based on the details available from the CBI.
Kingsbridge’s IR35 Project Manager Mr Dawson explained his assessment: “While I struggle to see the Green Card useful in the context of determining employment status for tax, it still could be useful.
“How? Well, one of the many questions we often get asked as an IR35 insurance provider pertains to what constitutes a genuinely ‘contracted out service.’
“If HMRC issued a ‘Green Card’ to those businesses that can demonstrate their model is and will remain compliant with this principle, it could be a useful asset in clarifying the confusion over which contractual party needs to consider the off-payroll working rules.
“So a Green Card to address the often misunderstood area of ‘contracted out’ services would be workable, much more so than it determining an engagement’s employment status.”
‘HMRC’s long-term vision of what self-employment is’
Former tax official Walsh confirmed that a card doesn’t sit within her old employer’s “long-term vision of what it would accept as self-employment.”
“If you’re within that vision, as I recall it, it may lead to exemption from paying employment taxes.
“HMRC distinguishes between the ‘individual who works under the control of and as part of the business of another’ – and those who go it alone and set up on their own account.
“This latter group bear responsibility for the success or failure of the enterprise. And we’re actually talking of boiling that down to giving persons in that group a card bearing their name that says they do that?”
‘Confirmation of Arrangements, CEST, and now a Green Card’
In previous tax years, IR35 experts have commended a ‘Confirmation of Arrangement’ document as a useful defence in an IR35 investigation.
Signed by both client and contractor, a CoA was said to be potentially useful to cement an outside IR35 position, particularly on long assignments or where the PSC’s client representatives change.
But like the CBI’s Green Card, and “not dissimilar to CEST” a CoA only speaks to a specific point in time, cautions Kingsbridge’s Mr Dawson.
‘CEST by HMRC still generating criticism’
The insurer’s IR35 Project Manager is therefore concerned at the CBI’s ask last year for a “new tool” related to IR35, given, he says, “how much criticism ‘Check Employment Status for Tax’ continues to generate.”
Yesterday, HMRC confirmed that it will honour CEST outcomes where the inputs have been made accurately and non-fraudulently.
Tax officials also signalled to Kingsbridge that the free tool to test IR35 status is ticking the boxes that the Green Card facility by the CBI appears to be concerned with.
‘Open-minded thinking’
A qualified solicitor — seemingly an optimist too, APSCo’s Tania Bowers doesn’t sound like she’s ruling anything out on March 26th:
“IR35 is of course a notoriously complex tax law. However, in a stagnant economy, desperate for growth, some innovative, open-minded thinking within HMRC is surely overdue.”
How Kingsbridge can help
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To find out more, get a quote or contact us today.
Simon Moore, Managing Director at Moore News Ltd
Simon Moore is a journalist with NCTJ-approved journalism training, who has worked inside the newsrooms of local, consumer and national media titles.
He today writes news and features for trade publications specialising in freelancing, small business and the self-employed. Simon’s articles have been linked to by The Daily Telegraph and the biggest newspaper website in the world, MailOnline. He was appointed to be a judge at IPSE Freelancer’s Awards 2023.
