IR35 Enquiries Rising – It’s Official

At the latest meeting of the IR35 Forum (23rd July) HMRC confirmed that as a result of the departments' restructuring of IR35 compliance work and focused approach, this has allowed for an increase in the number of IR35 reviews.

IR35 cases are essentially worked by the three specialist teams located in Croydon, Edinburgh and Manchester, although cases are not restricted to their particular geographical area and can be drawn from anywhere in the UK. The overall strategy is, however, overseen by one individual.

 

IR35 Reviews

The Revenue also reported an improvement in the time it takes to bring IR35 reviews to a conclusion, citing one review that was completed within a period of 6 weeks. The actual outcome of the enquiry was not disclosed.

At the outset of any IR35 enquiry nowadays HMRC state the period to be reviewed and will confine themselves to that period unless they uncover information about earlier years. This is in keeping with general compliance practices. As a general rule, the Revenue will not be seeking to look at earlier periods at the beginning of a review unless they already hold information that arouses their suspicions about earlier years.

With the revised approach to IR35 in its infancy it has not been possible for HMRC to gather data about any trends of businesses or end clients involved in current IR35 reviews, although a picture could develop over time.

 

Business Entity Test

It is a similar story regarding the impact of the business entity test, as HMRC do not have any figures on the number of taxpayers using the test. When the test was published a number of months ago there was, and still is, much criticism about the weighting of some of the questions and that this should be revised. It was suggested however that making changes to the points system could cause confusion. One Forum member suggested that any changes should only be made once and then again in 2 years’ time based on practical experience.

 

Taxation of Controlling Persons

Although some discussion took place about the Taxation of Controlling Persons this is currently the subject of consultation which affords people the opportunity to contribute to the debate. The consultation is due to close this coming Thursday and HMRC have said that they will be holding some specific consultation sessions over the summer at which Forum members could further participate.

 

Service Company?

At the beginning of the meeting HMRC gave a short presentation on the Real Time Information (RTI) programme. A number of interesting points arose from this. Firstly, the current two part question 6 included on form P35 will become one solitary question, 'Are you a service company who has operated the Intermediaries legislation (sometimes known as IR35) or the Managed Service Companies legislation?'  This will become part of the PAYE regulations for 2013/14 and it will also be mandatory to answer the question 'on the last return for the tax year'. It should be noted however that RTI dispenses with the need to complete the Employers Annual Return and may therefore be referring to a declaration to be made on the last payment submission on or before 5th April.

RTI requires employers to report to HMRC each time payments are made through the payroll and HMRC was asked if such payments would include dividends. The Revenue agreed to provide written advice on this point.

HMRC also agreed to provide more details on RTI , timeline of its introduction and its specific impact on those affected by IR35 which, by the time this article goes to press, they should already have done.

The Forum is next due to meet on 9th October

6 Comments

  • C says:

    IR35 enquiries to rise as a result of the IR35 Forum, as suggested by the PCG.

    Sigh. With friends like the PCG, who needs enemies?

  • Graham says:

    Couldn’t agree more. They seem to do more harm than good. Has anyone read the minutes of the last forum meeting? What a joke. You can easily see why the Civil Service needs overhauling.

  • damck says:

    The PCG attempted to work with HMRC to produce real business tests which would have seen all but true “bum-on-seat” “part and parcel” contractors at risk of IR35. HMRC chose to basically ignore both PCG and most other members of the IR35 Forum’s suggestions and create tests with scoring which guarantees that 80%+ of contractors are placed at risk.

    Go figure!

  • Tax is Taxing says:

    All should remember: Employment law has not changed and HMRC’s opinions about IR35 are usually biased and worthless.

    It is the Employment Tribunals who ultimately decide on IR35, not HMRC.

    HMRC’s continued pursual of IR35 is a huge waste of tax-payers’ cash and is against the interest of the country.

  • damck says:

    [quote name=”Tax is Taxing”]All should remember: Employment law has not changed and HMRC’s opinions about IR35 are usually biased and worthless.

    It is the Employment Tribunals who ultimately decide on IR35, not HMRC.

    HMRC’s continued pursual of IR35 is a huge waste of tax-payers’ cash and is against the interest of the country.[/quote]

    Indeed but, if HMRC’s use of Fear, Uncertainty and Doubt tactics cause the unknowing to cough up, they can then justify their approach to HMG while also having a larger pot to use attacking the innocent via tribunal.

    The message has got to get out. Ignore the “victim tests”, get you house in order, get decent tax investigation insurance that will take over the hassle and stress should an IR35 enquiry letter hit the doormat.

    Lastly – do not fall into the trap that HMRC may lay by asking about IR35 via a Business Record Check. If this does happen, the PCG would be pleased to hear from you.

  • Adnan says:

    With IR35 enquiries rising I think HMRC will take more cases to court and will soon be slapped down. In time they will back down again and in 5 years they will be drawing up a new set of rules. With the crap they came up with this time I really wonder whether they will ever see common sense. At least the judges are not behaving in a similar way.

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