New HMRC IR35 guide – are things any clearer?

Last week, HMRC published new IR35 guidance (PDF), to replace the ‘FAQ’ section which had existed on its official website for over 13 years. We asked IR35 expert Seb Maley from Qdos whether the new information was an improvement on the old, and how specific IR35 issues have been tackled this time around.

Why has HMRC released new guidance at this time. Is this a result of the IR35 Forum?

The new guidance has been released following repeated criticism of the IR35 legislation, particularly around it’s lack of clarity for those affected by it. This criticism culminated in a scathing report by a House of Lords select committee, which the Government subsequently responded to. In their reply they admitted that the guidance around IR35 was lacking somewhat. This has also been an area the IR35 Forum have continually picked up on.

Is HMRC keen to promote use of its Contract Review Service?

HMRC is very keen to promote both its IR35 helpline and Contract Review Service. Its intentions are certainly sound, but the very nature of the service means that contractors will be left in a catch 22 situation if HMRC think they are inside.

Are contractors still at risk from using the CRS?

I certainly believe there is a risk to using the CRS. It’s not a ‘trap’, as some may suggest, but contractors who receive an ‘inside IR35’ opinion will either have to accept it and trade inside, or appeal against the opinion and effectively jump straight into an IR35 enquiry. If someone ignores the opinion and continues to trade outside IR35, HMRC would be likely to apply a penalty if there was an investigation at a later date.

How does the new guidance address the right to provide a substitute?

The guidance does cover substitution, and there is perhaps further clarification required in this section. It starts by stating that a right of substitution must be genuine, i.e. any clause in the contract should be reflected in reality. However, it goes on to say “HMRC doesn’t accept that the right exists if the client’s permission must be obtained before sending a substitute”. Whilst it has always been the case that an end client should not have a carte blanche right to reject a substitute, this paragraph doesn’t seem to give any room for the contractor giving notification or obtaining any sort of agreement from the end user.

Overall, is the new document an improvement on the old FAQs?

This is certainly an improvement from before and some areas in the guidance are genuinely helpful. However, there are a few areas that will be slightly worrying for contractors and the fact that the guidance has been released at all proves that IR35 is not going away.

Many thanks to Seb for his answers. Alongside its well-known IR35 and insurance services, Qdos has just launched a new accountancy division – aimed specifically at contractors. You can find out more at Qdos Accounting.

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