Contractors must wait a little longer for the IR35 Review

Their minutes may have been published months after they took place, but the two latest IR35 Forum meetings confirm ‘the big picture’ on IR35 – that the taxman is pulling together the IR35 Review, writes forum member Kate Cottrell of Bauer & Cottrell.

Most members of the IR35 Forum, which met in May and most recently in July, have been working hard on improving the administration of the rule and evaluating the results of the piloted IR35 reforms of 2012.

Many of the recommendations and conclusions of the House of Lords Select Committee on Personal Service Companies have also fallen within the Forum’s remit and addressing these issues coincides with the production of the report on the IR35 pilot.

That pilot included the Business Entity Tests (BETs). I have been opposed to the BETs from the beginning on the basis that they had no foundation in case law and would inevitably be used as an IR35 status test. That said, it was only right that they should be tested - especially as many external forum members were fully behind them. 

Now though, all support for BETs has evaporated and there is evidence that they are being used as a status test and are being manipulated. Once the BETs are abolished – and I predict that they will be -- there will be a pressing need for some up-to-date guidance for the public sector, where BETs have been used as part of the assurance process.

The abolition of the BETs will make little difference to contractors. Our experience as a firm of IR35 advisers is that virtually no contractor achieves a low score and, outside of the public sector assurance process, most contractors had never heard of them.

Removing them, precisely as the IR35 Forum has recommended, will likely be cheered by those contractors who do know about them, however, even if it’s just because there will no longer be a tool in place telling them that they are ‘medium’ or ‘high’ risk – the likeliest outcomes under the BETs.

But except for the ‘office-holder’ amendment, the BETs and the other reforms in the 2012 pilot have not changed IR35 as a piece of legislation. Given then that the rule is the same as it was when introduced, and in light of all Forum suggestions to improve IR35's administration having to fit with HMRC’s operational constraints, the Forum has achieved a lot in a relatively short time.

There is still more to do, but with the much improved IR35 guidance, awareness and transparency over HMRC processes, procedures and statistics, we are in a much better place. Hopefully the Forum will continue to give contractors reassurance that any changes to the way IR35 is being administered will be monitored and debated. The group also gives an ongoing opportunity to highlight issues and propose changes for the benefit of all.   

Less positively, the IR35 Review - to which forum members have contributed - has not met the initial timescales set by HMRC. Indeed, it is unlikely that the report will be ready to sign off at the November meeting of the Forum, which I look forward to attending.

UPDATES:

Oct 27, 2014 -- HMRC agrees to drop Business Entity Tests

Jan 6, 2015 -- 'Disappointing' IR35 Review unveiled to contractors

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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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