'Disappointing' IR35 Review unveiled to contractors

Contractors will find the taxman’s newly published review into IR35’s administration “disappointing”, an employment status advisory said last night.

Qdos Consulting told ContractorUK that, despite being 48 pages long and taking more than a year to produce, the IR35 review fails to contain “anything significant” for the typical contractor.

In fact, the 10 out of the 32 recommendations on IR35 administration that the review agrees to adopt, such as improving HMRC guidance, are “hardly game-changing,” says Qdos’ Seb Maley.

Derek Kelly of ClearSky Contractor Accounting agrees. “This document contains plenty of rhetoric, but it won’t change a thing.” Also in a statement to CUK yesterday, he said:

“The report’s recommendations seemingly amount to a PR plan for IR35. Is that really what’s needed for a piece of legislation that is now 15 years old? I for one don’t believe so.”

Asked about the review, which HMRC ran with the IR35 Forum, ex-tax inspector and forum member Kate Cottrell admitted that “much more” work on IR35 administration was still needed.

Speaking exclusively to CUK, she explained: “As the review shows, there is still a lot more to do especially in respect of HMRC’s approach to Compliance and IR35 enquiries. 

“These started well but there is evidence that HMRC are slipping into some of their old ways, and a lack of consistency of approach is apparent across the HMRC specialist teams.”

In line with her concerns, the review found the Revenue to be “inconsistent” when dealing with both contractors’ requests for extensions and with correspondence from their clients. 

These issues aside, Cottrell was uncritical. The forum’s job is to make clear improvements to IR35 administration and, she reminded, the review’s is to report on those improvements.

But in the review’s foreword, HMRC’s deputy director Rowena Fletcher seems to widen that remit, saying the report “looks at how effective the new approach [to IR35] has been”.

Though except for figures relating to HMRC’s IR35 Helpline and Contract Review, the report contains no data to gauge the effectiveness of the reforms made three years ago.

Mr Maley reflected: “I would have liked to have seen some actual data on cases since HMRC introduced the new measures in 2012; HMRC did suggest that this would be included.”

Instead, the review groups the IR35 Forum’s recommendations in five categories: guidance; promotion and communication, helpline and contract review, new compliance and the BETs.

It is the latter category which pleases the ACCA, because the category’s first of four recommendations – scrap the BETs -- has been adopted by HMRC, as have the other three.

“The abolition of the BETs is an important step towards a simpler IR35”, said the ACCA’s tax and business law manager Jason Piper, who is also an IR35 Forum member.

He believes that the actions outlined by HMRC in the review, which he says show “progress finally being made” around a “needlessly complex” rule, are a move in the right direction.

Indeed, contractors are likely to welcome HMRC agreeing in principle to providing end-users with an “agenda” where client staff are called to meet an inspector as part of an IR35 enquiry.

Also not explicitly adopted but largely agreed by the Revenue is the recommendation for it to inform the client if the end-user is going to be approached.

Even better for contractors in terms of IR35 administration is the fact that no longer is the initial IR35 enquiry letter disguised as a compliance review, points out Bauer & Cottrell.

“[Now] the letter directly refers to IR35,” the firm said. “HMRC’s guidance has improved… [too, as] it’s now possible to find out about IR35 without needing prior knowledge [of it].”

The review thanks all IR35 Forum members for their “contributions” (without which the withdrawal of BETs in October may not have happened), but a few of them are probably nursing bruised egos.

The report says: “Some of these [ideas from forum members to actively promote awareness of IR35] have been discounted at the inception stage, as they do not represent good value”.

And it’s that return for taxpayers’ money that was last night bothering ClearSky’s Mr Kelly. “I dread to think how much this review cost to produce,” he said. “Contractors, along with service providers and recruiters, will now be hoping for a period of stability and certainty regarding IR35.”

Editor’s Note: Related Reading –

Taxman releases IR35 Helpline figures

Taxman releases IR35 Contract Review data

IR35 Review: HMRC is managing expectations

Contractors must wait a little longer for the IR35 Review

Contractors caught by IR35 face enquiry survey