Has IR35 improved two years on?

Two years ago HMRC announced a new approach to IR35 to improve the administration of the contractors' tax. Qdos' senior tax consultant Andy Vessey looks at how the initiative has evolved.

Rather than reforming IR35, the more limited objective of improving its administration revolved around producing new guidance that included the business entity tests (BETs) and example scenarios.

The IR35 helpline was supposedly improved, offering a three-year "get out of jail" card where a contract is deemed outside of IR35 by HMRC and the arrangements remain largely unaltered when the Revenue select a freelancer for enquiry. Despite HMRC's reassurances that the helpline and review service remain independent of the compliance teams, very few people have been inspired to use it.

Those who have turned to HMRC's review service were probably been forced into doing so by ill-informed public sector organisations seeking reassurances about a contractor’s IR35 status following the Treasury's clampdown on public sector appointees in 2012.

April 2013 saw the IR35 legislation extended to those contractors who were fulfilling office holder roles via their own personal service companies (PSCs), although there appears to have been little activity by HMRC in this area.

Most recently, the House of Lords Select Committee on PSCs conducted its own investigation into IR35 and came up with a list of conclusions and recommendations as to how this awkward piece of legislation could be better administered and policed.

IR35 enquiries

IR35 compliance reviews are now more targeted and driven by new, specialist teams based in Bradford, Croydon, Edinburgh and Salford.

In years gone by, IR35 enquiries usually arose off the back of employer compliance reviews and could take years to conclude. Now, however, as part of HMRC's revised approach IR35 compliance checks are supposed to be more direct. They start with...

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Comments
JCresswellTax's picture

Good article

JCresswellTax | | Permalink

But although I follow this closely, I would leave the IR35 enquiries to the experts, without a doubt...

Philipredhead's picture

IR35 GP Locums

Philipredhead | | Permalink

I am still amazed that HMRC have not challenged any GP Locums trading through Ltd Companies over IR35 or even looked bin detail at non agency self employed locums for employment status!

 

And the moral of the story..........

GR | | Permalink

ask your contractor clients to get their contracts reviewed by Andy at Qdos.

Lot to do

njpandya | | Permalink

Good & informative article; however I seriously believe there appears to be case where Govt. knows who is doing what but reluctant to take any action and keep posting these articles to keep public in loop that they are serious about tax & IR35. 90% too strong word I know are working in London for one organisation/client only; what surprise me the most is like CIS industry HMRC MUST start charging IT Industry Tax at Source & ask the director's of the company to pay that tax every quarter; mentioning name of the end beneficiary client/group they worked for (not an umbrella/psc jokers agents). This would help HMRC not only to track which companies these people are working for and how long with;but also provide liquidity.

The main question to ask is does HMRC have any intentions of doing this or just wanted to create some noise about IR35 followed by silence....

JCresswellTax's picture

I can't even be bothered going into detail

JCresswellTax | | Permalink

njpandya wrote:

Good & informative article; however I seriously believe there appears to be case where Govt. knows who is doing what but reluctant to take any action and keep posting these articles to keep public in loop that they are serious about tax & IR35. 90% too strong word I know are working in London for one organisation/client only; what surprise me the most is like CIS industry HMRC MUST start charging IT Industry Tax at Source & ask the director's of the company to pay that tax every quarter; mentioning name of the end beneficiary client/group they worked for (not an umbrella/psc jokers agents). This would help HMRC not only to track which companies these people are working for and how long with;but also provide liquidity.

The main question to ask is does HMRC have any intentions of doing this or just wanted to create some noise about IR35 followed by silence....

How wrong the part of your comment iv bolded is...

johnjenkins's picture

Anthing to do    1 thanks

johnjenkins | | Permalink

with IR35 is wrong. Legally there is no definition of employment status. Guidelines for employers, yes, but nothing else. So IR35 is a nonsense which goes against company law. The beauty of it is, it is always the client that controls not the contractor. So any new measures surrounding control are doomed before they get off the ground.

As if we are bothered to read what you've bold

njpandya | | Permalink

Refer subject....

IR35    5 thanks

j.arbuthnott326 | | Permalink

I find it depressing that individuals who take on the risk of being self employed
(no automatic monthly salary, pensions, holiday pay, redundancy, sick pay, death in service insurance) are being hounded by the HRMC. They fulfil a vital role in the economy providing real expertise and experience , the knowledge to mentor staff and most importantly of all providing companies with short term and flexible resourcing as and when required without the overhead of permanent staffing

JCresswellTax's picture

100% This

JCresswellTax | | Permalink

j.arbuthnott326 wrote:
I find it depressing that individuals who take on the risk of being self employed (no automatic monthly salary, pensions, holiday pay, redundancy, sick pay, death in service insurance) are being hounded by the HRMC. They fulfil a vital role in the economy providing real expertise and experience , the knowledge to mentor staff and most importantly of all providing companies with short term and flexible resourcing as and when required without the overhead of permanent staffing

Which is why the above statement above from some about advance quarterly tax makes no sense at all...

This is all very well and good...

ds | | Permalink

and having a nice cosy chat with Revenue operatives over a cuppa, all very well and good too but is there any legal requirement to play along with the Revenue in these investigations? Quite frankly I've better things to do and if they want to investigate then let them go ahead but all the info they requested was lost when a water pipe burst last winter and the paperwork was water damaged and had to be disposed of. The accounts are still available and already filed with them and at Companies House, they can get bank statements directly from the bank and check that the income was correct. Go on then investigate, I've got work to do which will generate profit from which they will get their legal share. If I have to stop work to help them with their enquires then they will get less tax, is that what they really want ?

JCresswellTax's picture

I suppose that depends

JCresswellTax | | Permalink

ds wrote:

and having a nice cosy chat with Revenue operatives over a cuppa, all very well and good too but is there any legal requirement to play along with the Revenue in these investigations? Quite frankly I've better things to do and if they want to investigate then let them go ahead but all the info they requested was lost when a water pipe burst last winter and the paperwork was water damaged and had to be disposed of. The accounts are still available and already filed with them and at Companies House, they can get bank statements directly from the bank and check that the income was correct. Go on then investigate, I've got work to do which will generate profit from which they will get their legal share. If I have to stop work to help them with their enquires then they will get less tax, is that what they really want ?

On whether HMRC have to prove you fall inside IR35 or whether you have to prove you fall outside!

Old Greying Accountant's picture

All this would go away ...    1 thanks

Old Greying Acc... | | Permalink

... if they abolished NI and re-jigged tax to counter it!

johnjenkins's picture

Come on OGA

johnjenkins | | Permalink

simple and HMRC don't really go together do they?

I've not seen one credible argument from the government as to why it can't be done.

All we hear about is "disguised employment". I wonder who created that phrase. 

ShirleyM's picture

I often wonder .....    2 thanks

ShirleyM | | Permalink

IR35 is meant to catch 'employees' who work freelance.

I wonder exactly how many of these freelancers told their employer they didn't want to be employed any longer and insisted on going freelance, and how many employers had employees on short/long term employment contracts and decided not to renew and engaged freelancers instead (but insisted upon them operating through a ltd co)?

Escapism

njpandya | | Permalink

"Which is why the above statement above from some about advance quarterly tax makes no sense at all..."

For that one needs to have a sense of vision, attitude & wisdom. People are more afraid to acknowledge how they are playing with instruments & vehicles like self-employment & PSC's. Majority of them are bollocks & someone said they generate employment; yes that's right no one is arguing about that; problem is employment is generated only between Husband & Wives & accountants know this very well....Ofcourse for people like this advance tax wouldn't make sense at all but super profits & dividends makes all sense..bollocks..

 

johnjenkins's picture

@shirleym

johnjenkins | | Permalink

Does it really matter. The crux of the situation is that there is no law that decides employment status yet HMRC are trying to create one through the back door. If government want to take on the responsibility of employment status then they should do so and make laws accordingly. They won',t because chaos means more money for them. It's nothing to do with what is right or wrong, it's all about how much money they can rake in without raising the basic rate so it doesn't look bad for them.

JCresswellTax's picture

I think its quite clear    2 thanks

JCresswellTax | | Permalink

njpandya wrote:

"Which is why the above statement above from some about advance quarterly tax makes no sense at all..."

For that one needs to have a sense of vision, attitude & wisdom. People are more afraid to acknowledge how they are playing with instruments & vehicles like self-employment & PSC's. Majority of them are bollocks & someone said they generate employment; yes that's right no one is arguing about that; problem is employment is generated only between Husband & Wives & accountants know this very well....Ofcourse for people like this advance tax wouldn't make sense at all but super profits & dividends makes all sense..bollocks..

 

From your posts on this topic and other threads that you certainly have an agenda against PSCs.

wow.    2 thanks

GazCol | | Permalink

njpandya wrote:

"Which is why the above statement above from some about advance quarterly tax makes no sense at all..."

For that one needs to have a sense of vision, attitude & wisdom. People are more afraid to acknowledge how they are playing with instruments & vehicles like self-employment & PSC's. Majority of them are bollocks & someone said they generate employment; yes that's right no one is arguing about that; problem is employment is generated only between Husband & Wives & accountants know this very well....Ofcourse for people like this advance tax wouldn't make sense at all but super profits & dividends makes all sense..bollocks..

 

I think this is the most ill-educated response I've ever read to a subject on AW, and that's some going. Is that you Hector?

Old Greying Accountant's picture

And what is wrong ...    5 thanks

Old Greying Acc... | | Permalink

njpandya wrote:

"Which is why the above statement above from some about advance quarterly tax makes no sense at all..."

For that one needs to have a sense of vision, attitude & wisdom. People are more afraid to acknowledge how they are playing with instruments & vehicles like self-employment & PSC's. Majority of them are bollocks & someone said they generate employment; yes that's right no one is arguing about that; problem is employment is generated only between Husband & Wives & accountants know this very well....Ofcourse for people like this advance tax wouldn't make sense at all but super profits & dividends makes all sense..bollocks..

 

... with trying to keep as much of your income as possible? Especially when all politicians of any shade have no clue of pretty much anything, they certainly aren't fit to decide how to spend billions of tax revenue in a wise, efficient and controlled manner.

If tax revenues were spent in a targeted, well thought out constructive manner to ensure young people were properly trained in skills that were needed; investment was made in proper infrastucture based on sound and researched economic studies; our businesses were actively defended from the bureaucratic red tape dross spewed out by an unelected european commission; state assistence was given solely to those in genuine need who have lived in this country for more than a few days; and the rights of the law abiding tax paying silent majority were given preference over the those of a vocal minority of crackpots and psychopaths, then people may not be quite so adverse to paying tax!

johnjenkins's picture

@OGA    1 thanks

johnjenkins | | Permalink

I just stood up and applauded your post. (I'm not joking or taking the pee). You are so right and it won't be till next May that it will sink into this Government.

Trade Unions can strike, what can taxpayers do? Elect a totally different party in the hope that those with superiority complexes may realise what they have done.

mr. mischief's picture

The solution is easy    1 thanks

mr. mischief | | Permalink

The solution to this IR35 mess is actually very easy but there is no chance any Government will take it anytime soon.  The people who create the situation where large chunks of the workforce use PSCs are not the little guys, they are the big guys.

Locally this is predominantly large employers such as Sellafield, the Nuclear Decommissioning Authority and so on.  All of which are either actually part of the public sector or one step removed via a cost-plus contract which costs all taxpayers an arm and a leg.

Those guys should have all the responsibility for checking employment status and the rest, just like in the Construction Industry Scheme.  If one of my Sellafield clients has a contract review which comes back with a couple of suggested changes there is no way he or she can call up the agency and ask the agency to ask, for example, Sellafield Limited to change the wording.

Ten or twelve years ago this was on the table.  But as with the laughable review of the IFA sector in 2013, the big guys moved in and so all the responsibility and cost of IR35 falls on the little guys.

The solution is easy peasy but will never occur.

 

But where lies the onus ? Why should I prove anything ?

ds | | Permalink

If I am using a legally sound limited company solution and pay all due taxes and comply with all paperwork, PAYE and on-line accounting systems then why should I have to prove anything ? I am obeying the Law as it stands, surely it is up to Revenue to bring a case and prove it in court that I am behaving unlawfully and not for me to help them with that. As mentioned elsewhere IR35 seems to be dead in the water as making that case is fraught with difficulties.

mr. mischief's picture

Alive and kicking    1 thanks

mr. mischief | | Permalink

IR35 is most certainly not dead in the water.  Perhaps there have not been any high profile cases for a while, but there are 9 or 10 cases locally I know about.  None in my client base thankfully.  I am also aware via some of these clients that colleagues of theirs - who foolishly had decided to risk it by not getting tax investigation insurance - coughed up chunks of tax during 2013.

IR35 jobs are "How long is a piece of string?"  You answer one set of questions, 10 more come back at you, you answer them, etc.  After a few of these one of two things seems to happen locally:

1.  The HMRC guy realises the victim has insurance.  (If I had an IR35 case I would tell the HMRC guy this by phone on the first letter so he or she knows it's a dead duck.)

2.  The victim is not insured and realises he or she is going to have endless letters, at great expense, over the next few years.  He or she cuts losses by coughing up all or some of the tax, whatever the deal they can do.

but isn't the onus still on HMRC to prove their case?

ds | | Permalink

Insurance is obviously a good idea and even better for the insurance company if it never has to pay out. I also have no doubt that many accountants practices sell this and no doubt make a commission on it too. What you seem to suggest is if you haven't got it you should cave in at the first hurdle and not put up any resistance and let them off the hook to actually prove their case in court. Even if you have it, there must be a limit to what the company will fund. Rather like insuring a car, they would often prefer to write it off than carrying out the repairs.