Since September 2012, freelancers working in the public sector under contracts lasting 6 months or more and receiving £220 plus per day, have had to provide assurances about their IR35 status. This was by initial reference to the BET’s.
Low risk
If a contractor could demonstrate they were low risk by scoring more than 20 points then the public body would accept they were outside of IR35 and could pass ‘go’.
Medium or high risk
Any score below 20 on the BET’s barometer meant that the contractor would have to provide assurance that they were outside of IR35 in a different way, chiefly a contract review – preferably by the public sector’s favoured assessor, HMRC. However, the Cabinet Office guidance inferred that this could be undertaken by an accountant or professional adviser.
Caught by IR35
Even if the contract is within IR35 the government body still want to make sure that a freelancer is applying the rules properly and the contractor would be required to indicate that their company would be making a ‘deemed payment’ at the end of the tax year.
With the removal of BET’s from 6th April 2015 the Cabinet Office has had to revise their guidance: Procurement Policy Note – Tax Arrangements of Public Appointees. However, nothing radical has happened, simply the reference to BET’s has been removed and there are two simple methods of IR35 assurance, namely contract review or accepting you are caught by IR35.
With one barrier removed the revised rules may work in a contractor’s favour but there should now be a unified and consistent approach by government departments in accepting contract reviews carried out by professionals rather than HMRC. However, given some of my experiences of so-called Taxation Officers within public bodies, who display an alarming amount of ignorance at times, the fear is that their default position maybe to run to HMRC as the new guidance states, “Under the off-payroll guidance, it is the Department’s responsibility to determine whether or not a worker has provided assurance that they are meeting their tax and NICS obligations. Departments may seek advice from their HMRC CRM when making such determination.”
A Department can exercise a right of veto should they be concerned that the results of a contract review, carried out by whoever, do not adequately reflect the reality of the contract. In these circumstances the Department can tell the freelancer in advance the information to be disclosed in a contract review.
Alarmingly, Departments are advised to report any worker who fails to provide assurance and had their contract terminated, to HMRC’s Tax Evasion Helpline. What?! Just another classic example of the climate of hysteria that currently exists in the area of tax avoidance and evasion.
What is interesting is that BET’s has not been replaced with any alternative. Is this a sign that the revised IR35 guidance will also be devoid of anything tangible to help contractors gauge their IR35 risk?
I do not see what business a contractor’s IR35 status should be to the end client. It is nothing to do with them.
Just avoid Government Public Sector contracts.