Let’s say we give HMRC’s new IR35 framework a chance, as has been suggested by IR35 and taxation experts, and contractors agree to trialling the business entity tests, alongside all the other measures, for 12 months.
How, then, will we be able to measure if ‘better administration’ has been achieved? What will it look like to HMRC? How will it know to claim ‘victory’? This is important because, right now, we don’t have enough information to set any baselines and define any measurable outcomes.
Will ‘better administration’ be measured by increased tax revenues as a result of better enforcement of IR35? We know from Freedom of Information Act (FOI) requests that HMRC can measure the tax yield it considers directly attributable to IR35, presumably by contractors declaring deemed payments.
We can also use the results of the P35 question 6 to roughly calculate revenues raised by the deterrent effect, because of contractors ‘self-certifying’ and simply paying themselves a salary, rather than bothering with a deemed payment. But one flaw in this approach is that we can’t easily measure the yield of contractors choosing to use umbrella companies because of IR35, so there may well be some big holes in the numbers.
Alternatively, the number of letters sent to contractors and the number of IR35 reviews that lead to a contractor settling an assessment for being inside IR35, and subsequent tribunal case victories, might be good quantitative measures for HMRC’s definition of ‘better administration’. But how many letters sent, IR35 reviews completed, settlements accepted by contractors and tribunal case wins will give HMRC reason to think it has succeeded with its new IR35 framework?
And, given the painfully slow progress of tribunal cases, will there be enough reviews and cases after 12 months on which HMRC can base some assessment of its progress towards ‘better administration’?
The Office of Tax Simplification’s Tax Director John Whiting has called for “a genuine trial with proper evaluation and a good debate about the results”. But how can HMRC conduct an evaluation without understanding where it is starting from, where it wants to go and how to measure its progress?
At the moment, it’s all a bit vague on the all-important measurables. The situation reminds me of project managers on IT contracts asking for things to be ‘quicker’, ‘cheaper’, ‘more efficient’ and so on, without actually specifying what they meant.
Those types of objectives are all very woolly unless you put some measurable figures on them, and at the moment I don’t see any measures in play to evaluate IR35’s ‘better administration’. So, how is HMRC going to know when it has neared or reached the point of ‘better administration’?
After all, it’s pretty difficult to hit the bull’s eye when you don’t even know where the target is.