HMRC seeks to impose control in new guidance
Kye Burchmore is keen to challenge the new HMRC guidance on “supervision, direction or control”.
From 6 April 2016 the test for employment intermediaries to consider when deciding whether travel and subsistence expenses can be paid to the workers, is whether the person is subject to supervision, direction or control (SDC) by the engager or any other person. HMRC issued a statement on 27 April 2016, which says the draft Finance Bill 2016 currently contains an error about when the SDC test applies, but that will be corrected at the earliest opportunity.
HMRC is also consulting on whether the SDC test should be used for determining whether someone is within IR35.
HMRC has updated its guidance notes on SDC, which make pretty grim reading. The essence of the document is that everyone is subject to a right of SDC and there will be very, very few circumstances when this is not the case.
The test of SDC does set the bar very high, but bear in mind that this document is HMRC guidance, not the law. The definition of SDC needs to be tested and challenged at the tax tribunals so the correct boundaries can be found, because it is quite apparent upon reading the guidance that HMRC will seldom accept there being a lack of SDC.
Who provides the proof?
The guidance makes it clear that the onus of proof is on the taxpayer. HMRC will assume there is the right of supervision, direction or control until it can be proven otherwise.
HMRC will not accept signed waivers and generic statements about control which means the taxpayer is left with the near impossible task of proving a negative. How does one prove the engager doesn’t control how the work is provided? If you find out the answer please let me know.
I suspect most evidence provided to HMRC on this point won’t be satisfactory. Then HMRC will insist on carrying out an inquisition on the workers, or simply ignore the evidence, in which case the only resolution will be to take the matter to a tax tribunal.
When will SDC apply?
The HMRC guidance casts the net as wide as possible with regards to when there will be supervision, direction or control. In one example HMRC states that if a person checks the work that the worker is doing to make sure it meets a required standard the worker is subject to supervision.
Any person or business that is paying for a service will want to check the service is to a sufficient standard. It’s unlikely a judge in a tribunal concluding that this amounts to control, and HMRC’s guidance goes too far in this respect. The case may be different if the engager is checking how the worker is undertaking the services, but not if it is only to ensure the services meet the standard being paid for.
HMRC also states on many occasions within the guidance that control incudes the power to move a person from job. Moving a person to another job is controlling what work they undertake rather than the manner in which they actually do the work.
Procedures or instructions
In its guidance HMRC confirms that if there are procedures, method and instructions in place it is likely the SDC test will be met. It is important to note that health and safety procedures do not count as control, because they apply to all workers (employed or self-employed). Thus if health and safety is the only reason why such documents and procedures are in place it will not cause a problem (although may still be disputed by HMRC).
In contradiction to the above the HMRC guidance goes on to state that if the manner in which the work is governed by regulations or some other industry framework and standards there will be SDC, such as health care or teaching. This begs the question that if these are industry regulations they will also be applicable to all workers (employed and self-employed) and should therefore be no different to how HMRC treat health and safety regulations. The examples in the HMRC guidance are largely public sector industries which seem to be a focus of HMRC at the moment (as per the consultation on IR35).
Other factors to consider
HMRC has indicated it will look at factors beyond the manner in which the services are provided. The guidance sets out the example of a teacher that is not subject to SDC because the worker decides what services he will provide, when and how. This is all well and good but having control over how he works would have been sufficient on its own, control over what and when are not relevant to this legislation. A concern is that HMRC will use this example to say you must be able to demonstrate a lack of SDC over what work is provided, when it is provided, where and how; whereas only the last of these needs to be absent.
A major concern with the HMRC guidance is the last example of a house builder, in which the individual is subject to site rules, is told what jobs need doing that day, and is shown plans and specifications. According to HMRC this is sufficient for there to be SDC, in which case the construction industry has a huge problem.
This highlights perfectly that HMRC guidance is not legislation, it is only guidance and it should be challenged.
Kye Burchmore is director of Assured Tax Consulting which specialises in advice on employment status, IR35 and the agency legislation.