With the imminent implementation of the new rules for engaging contractors in the public sector, the question on the lips of freelancers and their advisers alike is whether or not government organisations will be prepared to accept evidence that a contractor is outside of IR35 from someone other than HMRC.
Employment businesses and public sector organisations are busying themselves putting into place the necessary contractual clauses/amendments and issuing internal guidelines regarding seeking assurances about a freelancers IR35 position. All of this seems to be happening at a frantic pace with the contractors themselves being the last to learn and left with questions that need answering.
IR35 Risk
For contractors who are at low risk of IR35 they will only need to prove this by virtue of HMRC's business entity tests at the six month point of the contract. It is likely however that the majority of freelancer's will fall within the medium – high risk category of the business entity tests. In this case leaked guidance suggests that evidence of whether or not IR35 is applicable could be provided by a contract review carried out by HMRC's IR35 helpline. Hands up who wants to use that!
Contractor Weekly has recently seen a memo from a government department titled, 'Implementing the Recommendations of the HM Treasury Review of Tax Arrangements', that may suggest that public sector organisations will be able to accept evidence from a contractor's tax advisor or accountant. In different annexes to the memo it states the following with regard to seeking assurances regarding IR35:
- 'The individual is responsible for the information provided, even if it comes from their accountant or professional adviser.'; and
- 'Individuals should seek further advice from their accountant or tax advisor'.
Even if evidence and opinion from IR35 specialists is to be accepted by public sector organisations they may still have recourse to HMRC if their finance and accounting departments do not possess the necessary expertise and knowledge required to evaluate the information put in front of them.
The memo also confirms that the 20 working day time period to provide appropriate assurances can be extended, in certain circumstances, to a 'reasonable period'. It does not however define the circumstances or a 'reasonable period'.
Be it new regulations or legislation, this is another example of a set of rules hastily dreamt up and enforced, the details of which we get to learn bit by bit. Altogether unsatisfactory!
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