HMRC have replaced their IR35 FAQ’s with updated guidance. There is not a lot to get excited about, however, as much of it is regurgitated and will provide nothing new for the discerning contractor apart from a few notable exceptions.
We all know of the IR35 CRS and its function but probably what is not so well known is what the process involves. Well now the guidance sets out what information the CRS require to provide an opinion on a contract, namely:
(i) the number of engagements held during the year
(ii) the number of different engagers
(iii) expenditure on equipment necessary for the performance of the contract
Anyone using the CRS is not under obligation to accept a negative opinion and has two courses of action available to them. Firstly, they can simply ignore it in favour of other evidence that supports their own opinion that IR35 does not apply. Alternatively, a freelancer may challenge HMRC’s opinion in an attempt to change the Revenue’s mind.
Where a dispute about an opinion cannot be resolved quickly then, with the contractor’s consent, the papers will be passed to the local IR35 inspector to resolve. So what turned out to be an innocent request for an IR35 assessment can unwittingly turn into an IR35 enquiry, by another name! Furthermore, if the Inspector supports the original opinion then this can only be overturned by the contractor requesting that formal tax and NIC assessments be raised so an appeal can be lodged. That appeal could end up being heard in the Tax Tribunals. What a nightmare! Anyone still think the CRS is a good idea??
A number of issues are clarified by the guidance, in particular that the IR35 rules apply to non resident PSCs where the worker lives in the UK and works for a client in the UK. In this scenario the PSC is treated as having a place of business in the UK whether or not it actually does have one.
HMRC state that they do not accept a right of substitution exists if the end client’s permission must be obtained before sending a replacement worker. Really? There maybe a number of valid reasons why a contractor may wish or need to receive the final OK from their client before installing a substitute. That should not diminish a genuine right of substitution. HMRC’s interpretation is always open to challenge and this should be one of those occasions.