IR35 Review: HMRC is managing expectations

The taxman used his latest IR35 Forum meeting to manage any expectations that a review into the rule will sweep away ‘the bad’ and leave only ‘the good’ reforms.

Expected to be signed-off by forum members at the next meeting in November, or possibly before, the review will contain a number of recommendations on the IR35 reforms of 2012.

But “whether HRMC [sic] is able to implement them will depend on a number of factors, including whether the recommendation aligns with HMRC’s standard general processes.”

Such is the warning from the Revenue’s Rowena Fletcher, who addressed the forum at its latest meeting in July, minutes for which have belatedly been published online.

Trying to reassure members, whose time went into drawing up the recommendations, and perhaps taxpayers, she added “where any recommendation cannot be implemented, HMRC will explain why.”

It is not the first time that the tax authority has taken such an approach. On its behalf earlier this year, the government did the same in responding to the PSC Committee’s recommendations.

Now, the forum has been prepped for a similar response, as it has been warned: “HMRC can only implement recommendations within existing operational and legislative constraints.”

The bottom line then, which was stated later at the meeting, is that the taxman “can certainly respond to” the IR35 review’s recommendations “but cannot necessarily fulfil” them.

One example is the awareness of IR35, which a few members have worked on. While HMRC agrees with them that any new guidance must be “good value for taxpayers [sic] money,” it would “also need to align with HMRC’s commitment to digital by default.”

But an existing resource for taxpayers – the Business Entity Tests “are not generally known about or used,” the forum heard, in line with what members reported at the May meeting.

Should the tax authority accept the view of forum members, who in the upcoming review apparently say that the BETs should be abolished, it would have to communicate and handle their cancellation “clearly.”

Without the BETs, “targeted information” would have to be disseminated to all government departments yet “it was recognised that a further iteration” of the BETs would “not be helpful.”

Whether that recognition was sounded by HM Revenue & Customs (HMRC) is not specified in the minutes, but the department did say (once asked) that the ‘3-year guarantee’ to ‘low-risk’ test subjects would remain, even if the BETs do not.

The latest IR35 Forum also heard that:

  • HMRC will publish a range of annual figures on IR35, such as the number of cases; the number of settled cases, the total yield and the average time taken to settle cases.
  • The department will publish the number of employers filing an RTI end of year return and the number answering the service company question. The minutes don’t provide a reason why for this action, but the Lords found a “disjoint” between the two figures.
  • Inside HMRC, there is an objective to produce an assessment of the average administrative burden of IR35. Forum members’ input into how to calculate the burden will be offered to the Revenue. One of those members is contractor group IPSE, formerly PCG, which has estimated IR35’s financial burden on their members to be approximately £843 a year.
  • More guest attendees on the forum may be worthwhile, partly to help with a concern that the forum lacks “the contractor’s voice.” 

Editor's Note: UPDATE (27.10.14) - HMRC today announced its intention to scrap the Business Entity Tests.

SECOND UPDATE: (06.01.2015) - HMRC today published the IR35 Review.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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