HMRC use one-to-many approach

11th June 2019
Written by Nigel Nordone

PSCs and their engagers targeted with IR35 compliance letters

The ‘one-to-many’ approach is a tactic where HMRC sends one standard message to many taxpayers – usually a particular group – in order to influence their behaviour to increase compliance.

We have started to see evidence of HMRC using this approach in the construction, IT, and optometrist industries to PSC contractors, self-employed workers, and the organisations which engage them, and we expect this to extend to more industries.

Engagers have begun to receive these letters likely as a first attempt to ensure compliance with the new off-payroll rules implemented in the public sector in 2017, and due to take effect in the private sector in 2020.

The letters ask the engager to check if off-payroll workers should be on the payroll as employees or not. Pushing the use of CEST (Check Employment Status for Tax – HMRC’s online tool), HMRC suggest that the engager utilises this tool within 30 days. Whilst the letters are not formal requests issued using any statutory legislation, and therefore any response is voluntary, HMRC exert pressure on the recipient by warning that contact will be made to check what action has been taken.

In our opinion, and a view widely shared within the accountancy profession, the CEST tool is not robust enough and does not cover all aspects of the engagement in order to accurately reach a decision as to the worker’s status.

The three key areas laid down by Justice MacKenna in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance 1968, and which still apply today, that must be present for there to be a contract of service (employment), are that:


  • Personal service must be provided by the worker;
  • Mutuality of obligation must exist;
  • The engager has a right of control over the worker;

If it can be shown that any one of these factors does not exist, then it cannot be a contract of employment, but a contract for services (self-employment).

Nevertheless, terms of the contract must be a true reflection of the actual working arrangements and should be reviewed together in order to correctly arrive at an opinion of the worker’s employment status.

The Ready Mix Concrete judgement did determine that other factors present must be consistent with a contract of service. Factors such as ownership of significant assets, financial risk and the opportunity to profit are not consistent with a contract of service. These factors should also be considered in those situations where the three key areas do not provide a conclusive result.

With the above in mind, the question is whether HMRC consciously omitted many of the relevant questions that should be considered in each and every status review, as it is clear from the CEST tool that there are no questions surrounding the issue of Mutuality of Obligation, for example. Indeed, it seems that the questions are very much slanted towards the answers that HMRC are looking for rather than a neutral approach with a view to reaching an accurate and unbiased opinion based on all of the facts.

There is a danger that the one-to-many approach being used on engagers now responsible for their workers’ employment statuses will put pressure on them to deem workers as inside IR35 regardless of their situation, in order to reduce the risk to their own businesses.

A further concern for contractors is that should a client reverse their decision based on one of these letters, there is a possibility that HMRC could open an enquiry for years prior, with the assumption that they were incorrectly placed outside IR35 previously.

It is important at this stage to be clear as to your status and obtain evidence for your reasons so that you are armed should you find your status amended in 2020 and HMRC look to enquire into previous years.

If you are already operating under the new rules and find that your client amends your status with no change to your circumstances, we advise to first speak to your client to obtain the reasoning behind this change.

Nigel Nordone
Written by
Nigel Nordone
Nigel Nordone is the Head of Tax at Qdos, after working for HMRC for over 20 years as a tax inspector. We’ve decided to forgive him for this little transgression as his knowledge of how HMRC handle enquiries and compliance checks is really beneficial for both Qdos and our clients. Nigel specialises in employment status and has personally represented hundreds of clients who have been subject to a HMRC IR35/employment status enquiry.

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