The second meeting of the IR35 Forum took place on 29th June and the basis of the 2 ½ hour discussion was a HMRC document that set out the department’s proposal of its IR35 organisational design and operational strategy. Attendees of the meeting agreed that the document would not be made public as it was only in its development stage.
At the previous meeting of the IR35 Forum in May, HMRC had asked members to provide specific examples of the Revenue inappropriately targeting certain sectors or parts of the country for carrying out reviews and of current IR35 cases that are older than 18 months. HMRC had yet to receive any response which is somewhat surprising given the level and variety of freelance representation across the Forum’s membership.
With regard to draft guidance and outline ‘gateway’ test, HMRC advised that these were still work in progress.
Despite this writers’ and probably many contractors scepticism, HMRC reiterated that the function of its Helpline is purely to advise taxpayers and gave further assurances that those who called the Helpline would not be flagged up for enquiry. So are we to believe that if certain information was revealed during a call to the Helpline that aroused HMRC’s curiosity they would not be tempted to act upon it??
Currently, recording of calls to the helpline is confined to date, time and a synopsis of the advice given. It is therefore possible for HMRC to create an audit trail of calls from their database and a taxpayer could then be given a reference number as proof of their contact with the Helpline.
Quite rightly, HMRC said that it could not provide certainty on a contract purely from a telephone conversation and was only therefore able to provide generic advice. If a contractor requires HMRC’s opinion on a contract, then the Revenue will ask whether or not the caller is willing to consent to their end client being contacted. If not, then HMRC will not pursue the matter.
There was a consensus that there would be merit in asking a caller what sector they worked in so as to pinpoint areas of concern or uncertainty.
A further report is to be given by HMRC at the next meeting scheduled for 14th September.
Further consideration is to be given by HMRC to the setting up of a team to help and educate employers, end clients and Employment Businesses. It was agreed by the Forum that it would be necessary to consider the size and nature of engagers when developing such a team, as this will influence the nature of the education provided.
Even though IR35 is 11 years old there still remains ignorance of the legislation amongst employers as they were being advised to engage workers via an intermediary company with scant regard to the subsequent obligations placed on the workers. Neither employer or worker seemed to realise there might by IR35 implications in such an arrangement.
Employers also need to understand their responsibilities under employment rights legislation even when engaging a personal service company worker. HMRC cannot, however, publish guidance on anything outside its remit.
Where there is wider low level risk, HMRC indicated that this could be addressed by methods other than traditional IR35 reviews. The Compliance Unit could, for example, write to parties within a particular sector where there was a problem in understanding IR35, and provide information and where to obtain further advice. This could be supported by additional publicity via the sector’s representative bodies. Before such an undertaking however it was recommended that HMRC review its guidance which was considered to be inadequate. Forum members were therefore asked for their critiques to assist the department in identifying deficiencies in its current guidance.
These teams would be responsible for carrying out compliance reviews of high risk cases and HMRC acknowledged that their focus should be on concluding the review as quickly as possible for the benefit of both parties.
HMRC is reviewing how compliance reviews are conducted and accept that it is not acceptable for large numbers of questions to be automatically asked in every case.
Decisions in IR35 cases can sometimes take a ridiculously long time and the recent case of Primary Path is a classic example, where a contractor was subjected to 8 years of IR35 torment. Whilst HMRC say they are committed to settling cases without delay this can be hindered by the time it takes to obtain the necessary facts. That maybe true in some cases but HMRC also need to address their own staff’s approach, particularly those who view IR35 as a personal crusade, and to re-educate their staff in matters of employment status.
Peculiar to IR35, as opposed to general status cases, according to HMRC, was the need to obtain facts from the end client. So in non-IR35 status enquiries, HMRC simply take the worker at his or hers word do they? In the majority of cases, where there is sufficient tax and NICs at stake, of course they don’t. How then is IR35 so unique in this respect alone?
HMRC suggested that improved guidance that promoted transparency may lead to swifter conclusions of IR35 reviews. There are, however, a number of detailed issues to consider regarding the way HMRC carries out its compliance activity and how it reaches decisions which will be explored as part of improvement of IR35 administration.
Although HMRC is willing to reveal details of its broader risk strategy it cannot share details of its specific risk profiling, which is understandable. The department’s initial risk assessment eliminates certain types of cases with the remainder being critically assessed before reaching a decision on whether or not to take further action.
HMRC held their hands up with regard to the way they selected cases in the formative years of IR35, describing the selection criteria as “less refined”.
There was a lot for HMRC to consider who will now go away and take a universal view of their risk analysis and development of their operational strategy and an update will be provided at the next meeting.
HMRC are willing to take on board views of non-IR35 Forum members, so we invite our readers to share their suggestions, comments or ideas so that we may communicate these to HMRC. Together as one voice we can help affect the much needed improvement in the administration of IR35.