IR35 Forum – Progress at Last?

The fourth meeting of the IR35 Forum took place on 9th November, lasting 1 hour 40 minutes, and was dominated by the PCG and HMRC's presentations on IR35 risk assessment.

Since the first meeting back in May, the PCG has doubled its presence on the Forum from one to two and at this meeting added a third. Although other interested parties are represented, there are some glaring omissions that would help enrich the debates and processes but the PCG appear to have convinced HMRC that they are the voice of the freelance community.

HMRC did acknowledge, however, that they had consulted with four other external stakeholders, of which Qdos are known to be one, and would welcome proposals of any others that would be of valuable assistance.

Action points from last meeting 14.09.11

• HMRC had received some feedback about representative group members’ experiences of the IR35 Helpline but is seeking more. No feedback was provided by the PCG as it said its members did not use the Helpline.
• The PCG circulated its end to end process paper to Forum members on 7th November.
• Forum representatives had met to consider the application of IR35 in 12 scenarios, that HMRC provided and circulated their views to the Revenue on 7th November.
• Despite HMRC asking for names and circumstances of any IR35 cases, be they current, long standing or otherwise causing concern, none had been disclosed.
• HMRC circulated the IR35 Helplines most frequently asked questions to Forum members on 4th November.
• HMRC published its provisional organisational structure chart on its website on 6th October, which can be downloaded here (PDF).
• HMRC confirmed that it had begun to liaise with the Department for Business, Innovation and Skills about the review of IR35 to identify issues of common interest.

PCG presentation

The PCG explained that the paper that they had circulated had, in a previous form, been presented to the Office of Tax Simplification but since then they had carried out further work on it with the help of their advisers and also discussed the paper with non-Forum members.

It also acknowledged that as IR35 was, for the foreseeable future, here to stay, then any tests to determine whether or not the legislation applied would have to be within the parameters of the legislation. On this basis therefore, they proposed a tiered test where the indicators of business determine the level of HMRC intervention.

According to the PCG, the different types of indicators already exist in some form of data which could be requested or researched. For example, a business could be asked to provide documentary proof of the amount spent on training in a given year.

HMRC presentation

HMRC propose amending their risk rules to consider the overall nature of an intermediary (limited company or partnership), rather than just the contract. It was explained that HMRC want to focus and increase their compliance activity against higher risk cases and this would involve interventions across various sectors.

The Revenue propose to publish their general risk criteria to aid contractors in identifying whether they are considered high or low risk. Some risk indicators would, however, have to remain confidential to prevent abuse. HMRC would update their internal and external guidance to reflect this new approach. The department aim to introduce the new risk profiling and process from April 2012.

The Forum agreed that there were some similarities contained within both the PCG and HMRC's proposals. There was a consensus that, at the early stages of any IR35 review, HMRC should focus on the nature of the business and only go on to consider other employment status factors if the contractor was considered to be a risk.

It was also suggested that another indicator HMRC could take into account was whether the contractor had taken reputable professional advice, which HMRC said they would give consideration.

The Forum acknowledged that despite the agreement to the proposed new approach to IR35 risk assessment, differences in interpretation will still remain in some cases, which may have to be settled by Tribunals.

With regard to the issue of workers being coerced into providing their services via an intermediary it was agreed that a programme of education needed to be embarked upon whereby employers and end clients are provided with guidance on the implications of essentially employees providing their services through intermediaries. Does the Forum really believe this is enough? As long as end clients can stand outside of the IR35 risk process then it is doubtful that their attitude will change.

Next steps and action points

• A subset of the Forum to meet to discuss the IR35 scenarios to establish where agreement and differences in interpretation exist.
• A subset of the Forum to meet to discuss the operational processes supporting the new proposals.
• HMRC to update the Forum before its next meeting on 18th January 2012, on progress of Helpline, Guidance, Risk and Reviews.
• HMRC to research their department's understanding surrounding taxpayers receiving advice, be it professional or otherwise.
• HMRC to set up a technical meeting with their counterpart external Forum members before the Forum's next meeting to establish agreement and differences on the indicators that define a business for the purpose of IR35.
• HMRC to consult with external stakeholder Forum members, before the next Forum meeting, the development of their operational approach.

Six months down the line it does now appear that the good ship IR35 Forum has come to some agreement as to the course it should be plotting, adjusted its compass bearings and set its sails accordingly. Hopefully, there will be enough wind of change to enable it to reach its destination in good time.