The IR35 Forum met for the third time on 14th September and, although momentum has been slow thus far, there are signs that it may be gathering a little pace.
HMRC kicked off the meeting by expressing their concern that not enough detailed information was being provided about areas where there was a perception that the department needed to improve its administration of IR35.
Without this HMRC's development in improving IR35 administration will be stunted, limited and held up. To assist in moving matters forward, the Revenue agreed to set out a broad framework of the areas where specific detailed comments and views were being sought.
It was agreed that committee representatives should consult their members and colleagues so as to obtain a comprehensive and detailed view as possible. Should these members not have been doing this as a matter of course anyway?
Broad Framework Areas
The new organisational chart that HMRC had previously provided to the Forum will now be published but this is in its infancy, setting out how the department might be restructured in order to identify taxpayer groupings and be able to respond to those groupings accordingly.
There are four areas where the Revenue is seeking specific detailed comments on how to make improvements:
- Helpline – role and method of operating.
- Guidance – content, accessibility and target audiences.
- Reviews – opening, conduct and closure of reviews.
- Risk – which types of businesses represent high or low risk and why?
The PCG informed the Forum that is was working on a paper setting out a start to finish IR35 process which, by the time this article goes to press, should now be complete. Whilst the PCG should be commended for its efforts it should also realise and appreciate that it is not the sole and exclusive standard bearer for contractors and as long as it is willing to acknowledge, listen to and work with all other relevant parties then much more can be achieved in improving IR35.
IR35 Helpline
HMRC confirmed that a caller's anonymity was dependant on what the person was using Helpline for. If they wanted general IR35 advice, then the caller was at liberty whether or not to provide their details. If, however, they required a definitive opinion as to whether or not IR35 applied to a contract then the Revenue would need all the relevant information and almost certainly approach the end client.
When someone makes a call to the helpline HMRC confirmed that only minimal information is recorded, a precis of the caller's enquiry.
There was a view expressed that the Helpline was used mainly by accountants and that some of the enquiries made were not IR35 related.
Committee members agreed to ask their members and colleagues to relay their experiences of the Helpline with a view to providing feedback to the Forum.
IR35 Guidance
Those working on the IR35 Helpline had recorded the ten most frequently asked questions which will help to reshape the Revenue's guidance. HMRC are keen however to receive the Forum's observations about the guidance and, in particular, the extent to which it meets taxpayers’ needs.
Reviews
HMRC confirmed that it was in the process of organising meetings with a number of relevant parties to seek their detailed views on HMRC's IR35 administration. One meeting had already taken place which had been helpful in the areas of how the Revenue selects cases for review, conducts and closes reviews.
There was a particular complaint that HMRC do not consider closing reviews early when circumstances suggest they should do so. Furthermore, when HMRC decide not to pursue a case they leave the taxpayer and their agent in a state of limbo, by not specifying exactly their reasons for abandoning their enquiry and therefore leaving open their view on the application of IR35.
This type of conduct does not provide absolute closure to a taxpayer who is likely to be concerned that the matter maybe revisited at some future point. HMRC confirmed that across compliance in general, and IR35 specifically, there were already processes in place to identify those cases that should be pursued and those that should be concluded. These processes will be built upon as part of the IR35 improvements to ensure that reviews take no longer than necessary.
It was acknowledged that there had been recent improvements by HMRC in closing outstanding enquiries.
Whilst HMRC confirmed that they are committed to concluding enquiries as quickly as is possible this is sometimes delayed due to non-cooperation. The Forum were unanimous that it was in all parties interests that information is provided voluntarily and in a timely manner.
In addressing the criticism that there are sometimes too many officers involved in a review and that better administrative support was required, HMRC believe that the move to concentrate IR35 reviews within specialist teams will improve case administration.
Risk Assessment
There was a suggestion that HMRC should base their risk profile on whether or not a contractor is genuinely in business on their own account rather than the nature of individual contracts but HMRC pointed out that the way the legislation is structured, IR35 requires each contract to be judged on its own merits.
The service company question that is included in an individual's self assessment tax return is used by HMRC as part of its wider risk assessment process. The Revenue confirmed that in many cases it is left blank which itself can be compared against other entries on the tax return leading to the conclusion that the question should have been answered.
It was confirmed that HMRC will strive to only select high risk cases for review and their strategy will be to reduce to a minimum cases selected and where it is apparent that IR35 does not apply, to close such cases as quickly as possible.
Where cases are closed, HMRC agreed to consider proposals about providing certainty and clarity to contractors within the content of their closure letters.
The Forum agreed that it would be beneficial to identify twelve scenarios where there was uncertainty, the grey areas, between HMRC and the taxpayer/agent regarding the application of IR35. HMRC will be excluded from this exercise but will be made aware of the results at the next meeting to be held on 9th November. The Revenue will however provide the Forum members with twelve wide ranging scenarios to consider.
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