HMRC has responded to recommendations made by the IR35 Forum on how IR35 can be better administered in the future. Containing little of real substance, industry reaction has been negative.
Shortly after the Coalition Government came into power almost 5 years ago, the Office of Tax Simplification (OTS) was tasked with overseeing the workings of IR35 (the Intermediaries Legislation). Subsequently, an IR35 Forum, comprising HMRC, tax and industry experts was created to scrutinise and improve the way IR35 is administrated.
The Forum presented HMRC with 32 recommendations to overhaul the IR35 regime last year, and the taxman’s responses have just been published.
What does the report contain?
Split up into five main areas, the report lists a series of recommendations made by the IR35 Forum – which HMRC have either accepted or rejected.
These main areas, including a very high-level summary of relevant points, are:
1. External guidance (what information is provided to taxpayers) – HMRC has agreed to continue updating its web-based guidance (which recently moved to GOV.UK), and create inbound links from other relevant Government sites.
2. How IR35 is communicated and promoted – HMRC will provide experts to talk at industry events, but only “where this is an effective use of our resources”.
3. The Business Entity Tests (BETs) – the unpopular tests are to be withdrawn from April 2015. The scoring mechanism has been widely ridiculed, as almost all people who have taken the tests fall into the medium or high-risk categories. HMRC says it “will make sure that abolition of the BETS is widely publicised.” Other methods will be used to help taxpayers understand IR35 and whether or not it applies to them.
4. The IR35 helpline and contract review service – a mere 942 calls were made to the HMRC IR35 helpline during the 2013-14 tax year, and just 64 contract review requests were made during the same period (of which an IR35 opinion was given in only 16 cases). HMRC appears to be unwilling to provide any further certainty to people who ask for an IR35 opinion.
5. New approach to IR35 compliance – Few changes have been agreed to the current regime, however HMRC “aims” to provide an email address for end-clients to use to submit information (to speed up the investigation process), and also agrees that a taxpayer should be informed in advance before an end-client is approached.
The report has received an underwhelming response – and contractors hoping for things to change in the near future are likely to be disappointed. Derek Kelly, MD of ClearSky Accounting said that the document “won’t change a thing”, and even called the recommendations merely a “PR plan for IR35”.
Seb Maley from IR35 experts, Qdos, said that overall, “the report is a bit disappointing.”
“Other than the already revealed removal of the BETs, there isn’t really anything there of any substance. HMRC acknowledging that more needs to be done with regards to guidance and advice is a positive, but it’s not a dramatic development. Likewise with the Contract Review Service; will there be a significant increase in its use following any improvements? I doubt it.”
Many within the industry expected to read an update on how the IR35 regime has changed since 2012, but this was not forthcoming.
Maley summed up this feeling: “What’s really lacking is any data or information on what has actually happened since HMRC’s new approach in 2012, which many were expecting.”
Derek Kelly says that contractors need stability more than anything, given the amount of tax legislation which has been implemented over the past few years. He said that the report will change nothing: “The people who need to know about IR35, namely contractors, already know about it – either through their accountant, recruitment firm or trade association.
“Instead HMRC should focus on enforcing IR35 through use of its existing powers.”
James Leckie, editor of ITContracting said: “Having watched IR35 unfold over the past 15 years, it does seem extraordinary that people still have no easily digestible, accessible official guidance on IR35 – on the web or otherwise. And they’re still unable to get a qualified contract opinion from HMRC – to let them know if they’ll be caught by IR35 or not – before they undertake a contract.
“Is the situation likely to improve any time soon? On the basis of this latest report – no.”