What is the IR35 landscape like now?
With HMRC’s new approach to IR35 firmly in place and new cases coming thick and fast, we thought it an opportune time to look at what we’ve learnt from enquiries that have concluded so far.
1. HMRC have slipped back to their old ways
Much was made of HMRC ‘improving’ their administration of the legislation, with particular focus on the speed of a typical IR35 enquiry. In the old days of IR35, cases could and often did drag on for several years. In 2012 HMRC responded to criticism of this by pledging that they would close enquiries down as quickly as possible, particularly if acceptable evidence was provided at the outset.
They seemed to stick to this promise for a year or so, but more recently it has become apparent they are not as willing to yield. “Shortly after HMRC changed their approach to IR35 they were far more accepting of evidence presented to them,” says Qdos’ Andy Vessey. “However, in cases I’ve been handling recently they have become far more persistent and resilient, which significantly lengthens the time it takes to close the case down”.
2. End client contribution is key
HMRC have always been very keen to engage with the contractor’s end user and this has not changed in recent cases. Vessey said: “The inspectors I have dealt with have wanted to meet with the contractor and their end client as early as possible. They are increasingly eager to delve into the minutiae of the actual relationship”.
End client involvement has always been a pivotal part of an IR35 enquiry. If your client is on your side, as it were, it will leave HMRC with very little to go on. However, if HMRC end up probing someone from the client’s legal or HR department – who have little knowledge of IR35 or what you actually do – things can become rather difficult.
3. Enquiries are no longer focused on public sector workers
After the furore in 2012 over the use of PSCs in the public sector, it came as little surprise that this is where HMRC focused most of their attention when it came to IR35 enquiries. The majority of cases in the months after HMRC’s new approach to IR35 involved those working in the civil service. This has now changed and HMRC have undeniably widened their scope.
“We are now getting cases covering the whole spectrum of contracting, both in the public and private sector. Interestingly, I’ve had several in the last few weeks which have involved contractors in the field of telecommunications”.
4. Enquiries are far more targeted
In the early years of IR35 HMRC seemed to almost select enquiry targets at random. These days are over, as they now use what they call their ‘risk assessment strategy’. Sadly HMRC keep their cards very close to their chest in terms of what this strategy actually involves, but they certainly have access to various data, plus self-assessment and RTI returns.
The much maligned Business Entity Test perhaps forms part of their overall strategy too. Sadly the BET has proven to be largely useless from a contractor’s perspective due to the difficulty in obtaining the ‘low risk’ score which would put an IR35 enquiry to bed.
5. Evidence is key
In the opening enquiry letter from HMRC they will ask why you think that IR35 does not apply to you. If you can provide detailed and satisfactory evidence at this point it will go a long way to improving your chances and reducing the length of the investigation.
A useful weapon remains the Confirmation of Arrangements document. “One interesting development is that HMRC have started using the Qdos version of the Confirmation of Arrangements themselves during IR35 enquiries”, says Vessey. “If this document is in place before an investigation and can be presented to HMRC at the outset, it will make life very difficult for them”.
Qdos have recently released their IR35 Survival Kit, which contains numerous helpful pointers and facts about IR35. It can be downloaded for free here.
One of the key factors in all of this is the extent to which those who claim to represent the interests of contractors have actually made matters far worse.
Prior to the tax “review” in the early years of this government, when the “IR35 Forum” came into existence, IR35 was largely toothless. There were very few inquiries and they were not very savvy, losing many in court.
Then the PCG invented the BETs all on their own, without so much as consulting their members.
And also, all those “experts” in the IR35 Forum allowed them to publish a report to the Chancellor saying that contractors “are broadly taxed as per employees”.
For years the PCG have refused to admit that Employers NI is actually the problem – those caught by IR35 end up paying both ER NI and EE NI (since the company is pretty much forced upon them by other legislation).
SO, after seeing what went on in the IR35 Forum, it occurred to me that these people are not representing contractors at all – they are ensuring their own existence by making sure that IR35 continues in some form.
To have people like Kate Cottrell as an expert on an IR35 Forum seems to open the door to this – she is in the business of reviewing contracts, so the death of IR35 kills off (at least part of) her business.
The PCG will say that they would happily disband if IR35 could be abolished, but one thing we all learn in life is that actions speak louder than words – and their actions seem to me to speak for themselves.
We then saw these people ask HMRC to “investigate better” and as a result… specialist teams ramping up the level of investigation – another own goal.
Qdos were excluded from the forum early on – some pretext such as having disclosed… something or other, so they certainly cannot be blamed here.
I use Qdos for my insurances, but I strenuously avoid giving any money whatsoever to anyone associated with the IR35 Forum, including the PCG.
Essentially: if you’re not part of the solution, you’re part of the problem. And the IR35 Forum is a big part of the problem.
Of course, this is all just my take on events, just my opinion, you’re all free to judge these events for yourselves – I’d just note that IMHO you should judge the events/actions and the outcomes, ignore the rhetoric/words.
Personally I can see only two explanations that make sense to my mind – either there is underhandedness to preserve vested interests, or there is gross incompetence. I don’t need to know which, since either would be sufficient reason to avoid all concerned.
The bigger question is: how do contractors achieve better representation?
Agree completely re: Kate Cottrell. I have no idea why she is at this forum, and nearly every post out of her seems to be fear mongering about IR35. I sincerely doubt she wants to see it go.
[quote name=”Tony Soprano”]Agree completely re: Kate Cottrell. I have no idea why she is at this forum, and nearly every post out of her seems to be fear mongering about IR35. I sincerely doubt she wants to see it go.[/quote]
Utter rubbish. Ive had numerous contract reviewed by B&C and even a couple by Kate herself.
All have been declared outside of IR35, sometimes after changes were recommended and agreed.
If she wants to see IR35 succeed, why would her company issue quantified decisions on a contract’s IR35 position?