HMRC announce new northern office to be opened
Recently published minutes of the IR35 Forum's meeting of 29th April reveal that HMRC are to increase and strengthen the IR35 specialist team by opening an office in Bradford. This new office will complement the existing ones in Croydon, Salford and Edinburgh.
Currently, IR35 enquiries are very specific in that when a contractor receives the Revenue's opening letter they know with absolute certainty that it is IR35 that is the subject matter. This is in contrast to the approach taken prior to the creation of the specialist teams when the majority of IR35 investigations were thinly disguised as PAYE compliance checks until the mask was dropped and the real intent revealed.
It appears however that HMRC's desire is to ultimately return to the good old days as they have declared that they want to be able to get into a position where IR35 can be investigated by non-specialist teams where IR35 is not the main or only risk. Where necessary, such teams would take advice from the specialists.
Removing IR35 from the specialist teams would be a disappointment to the IR35 Forum and they are right to voice such. Since the new approach, IR35 enquiries, in the main, appear to be dealt with more quickly and efficiently. Where an officer, not versed in the art of employment status, is handling an enquiry of which IR35 is only one aspect, then natural delays will occur when that officer has to seek advice from the specialists. Whilst HMRC understood the IR35 Forum's reservations about their plans they explained that there was only a limited amount of work that the specialist teams could handle and it was therefore the department's ambition that the teams provide advice to “other areas” to handle an investigation when it becomes apparent that IR35 may be a risk.
Public sector appointees
Members of the Treasury were at hand to provide a review of the new arrangements for those contractors plying their trade within the public sector.
It was explained that the Treasury's role was to work with the various public sector departments to support them in implementing the guidance published by the Cabinet Office.
Concern was voiced about the lack of consistency in the way departments were applying the guidance and an example was given of a freelancer receiving different treatment from different departments. Although the Treasury washed their hands of these inconsistencies, explaining that their role is to provide guidelines to the various departments, they did agree to give the matter due consideration when they update the guidance.
Ever wondered how a department such as Transport has the capability to handle employment status matters? Well the answer is they don't! All public sector departments receive advice from an HMRC appointed Customer Relationship Manager.
The IR35 Forum suggested that allowing the opinions of external contract reviews would help speed up the process of deciding whether a freelancer was outside of IR35, as HMRC's Contract Review Service may be too slow. Whilst HMRC aim to complete contract reviews as quickly as possible they agreed to look at the possibility of improving turnaround times.
What happens when a contractor provides what he or she believes to be sufficient evidence that IR35 does not apply to their contract but the public sector department is of a different mind? In these circumstances the contract is terminated so there appears to be little scope for negotiation.
HMRC's Contract Review Service (CRS)
During the year ended 5th April 2013, there were 1,177 recorded enquiries. Do bear in mind however that an enquiry can be a question as to what IR35 is.
A grand total of 94 contracts have been reviewed and responses given to 89 cases. In 79 of those 89 cases HMRC were unable to provide an opinion because of the extent to which complete certainty was required and the contractor did not wish to provide further information or permit the Revenue to contact the end client.
It is clear that, despite HMRC's assurances that the CRS keeps confidential all results of its reviews from the rest of their colleagues, contractors simply do not trust them and why should they when, probably on most occasions, the Revenue are itching to get to the end client!
To resolve the underwhelming achievements of the CRS HMRC are considering a change in procedure to enable an opinion to be made more readily. For example, an opinion could be given based on statements given by a contractor without the need to seek verification with the end client. Has the penny finally dropped?!
The Forum also asked if the CRS would accept evidence given by external specialists and whilst HMRC said that they would give this due consideration it could not be regarded as decisive.
Agencies
The Recruitment and Employment Confederation (REC) reported that there was growing pressure on agencies to act as guarantors of tax assurance. As a result of this indemnity clauses are being inserted into contracts but REC believes it is not practical for its members to offer such guarantees as they are often “unaware of the realities of the working relationship”. Perhaps if some agencies were to ensure that the upper and lower level contracts mirrored each other as far as possible the clamour for tax assurances would disappear?
Office holders
HMRC has published guidance on the extension of IR35 to office holders and provided the IR35 Forum with an advanced copy. The Revenue are also developing additional guidance in the form of FAQ's.
The IR35 Forum will next meet on 1st August.
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