What the new IR35 policies mean for contractors

IR35: What happens next?

It's not just contractors who want to know the next steps for the Intermediaries legislation (IR35), although they are probably asking louder than any of the other parties affected by it.To begin to answer this question, let's start with a few inintial facts, writes Kate Cottrell, the Office of Tax Simplification's IR35 expert seconded from employment status advisers Bauer & Cottrell.

Following the interim report by the OTS on small business taxation, the government has committed to making clear "improvements" in the way IR35 is administered and the 2011 Budget report states that these improvements will include:

• setting up a dedicated helpline staffed by specialists:
• publishing guidance on those types of cases HMRC view as outside the scope of IR35:
• targeting compliance activity by restricting reviews to high risk cases: and
• setting up an IR35 Forum which will monitor HMRC's new approach.

IR35 improvements: When will I see them?

The first part of the process is to set up the new IR35 Forum in order to identify and agree HM Revenue & Customs' new approach to IR35 and the forum's terms of reference.  The first meeting is scheduled for this week.

IR35 Forum: What's the point?

The purpose of the IR35 Forum is to advise on improvements in the administration of IR35 by HMRC. It is therefore vital that members of the forum have a sound understanding of the market, and especially a thorough knowledge of how IR35 is currently administered by HMRC, in order to make a valuable contribution. 

While I will continue my role as a member of the OTS Small Business Review Consultative Committee, I am delighted to have accepted my invitation to also join the forum. And as with my previous work for the OTS, my expereince of handling hundreds of IR35 investigation cases and dealing daily with contractors, agencies,end clients and others including accountants, umbrella companies and insurers, will be brought to the table.

IR35, as legislation, is unchanged

It is important to remember that the IR35 Forum is being created to assist HMRC to improve the administration of IR35 and that there has been no change in the law nor in the powers of HMRC staff.  All changes will have to take account of constraints and HMRC's duty to police the system and protect revenue.

So this [the IR35 Forum and the other IR35 improvements] is not a second bite at the cherry to abolish IR35 or to intoduce some entirely new system, but it is a real opportunity for improvement. Any agreed new approach will hopefully bring clarity and consistency to deciding IR35 status and a significant reduction in the stress experienced by those contractors under investigation, together with the reduction of the time HMRC takes to deal with IR35 cases.

'High risk' IR35 cases

It was very pleasing to see the committments made in the Budget on IR35, but I expect the most challenging to be defining the "high risk" IR35 cases. The IR35 Forum will be monitoring all of these improvements. So at last there will be a central place to highlight examples of inconsistent practices; good and bad, and to develop a strategy for the benefit of everyone affected by IR35.