Contractors' clients to get new IR35 guidance

The clients of contractors in the public sector will soon receive fresh guidance on how to assess their off-payroll workers for IR35 purposes, February’s IR35 Forum heard.

In fact, HMRC is working with the Treasury on “updating guidance before 6^th April” when the Business Entity Tests will end, reveal the Forum’s minutes which were published this week.

“I raised the issue of messages needing to go out to departments post-BETs because [there’ s been] inconsistent approaches to the assurance process”, the Forum’s Kate Cottrell confirmed yesterday to ContractorUK.

She added: “In the public sector, many departments did not understand what the assurance process is all about, and some still don’t.

“For example, some decided that anything other than a low score on the BETs made them request [from contractors] a deemed payment calculation i.e. automatically inside IR35”.

However what the IR35 adviser sees as an “opportunity to address these inconsistencies” is not what those who blog about the contracting sector regard as the big talking point from the Forum’s latest meeting.   

The bloggers believe that HMRC’s disclosure that it is “committed to deploying resources” to take on 250 IR35 cases “at any one time” means the taxman is beset with a ‘capacity issue.’

To make its case, one blog attributed an estimate that HMRC needs 3,000 status inspectors to properly police IR35 to Jason Piper, technical manager of tax and business law at the ACCA. But In fact, he never made the claim.

“As the official transcript of the PSC Committee shows, that number [of 3,000 inspectors needed] was [the ICAEW’s] Frank Haskew’s suggestion,” Mr Piper told ContractorUK yesterday.

Moreover, it is Mr Haskew’s comments to the committee just moments before his staffing estimate that are actually a stronger basis to argue that HMRC has a capacity issue when it comes to IR35.

Speaking to the Lords at the time, Mr Haskew said: “I have heard some statistics that to do a proper policing exercise in this area could involve looking at 20,000 IR35 cases in a year.”

Yet since that submission, reforms have been put in place and are “in [the] process” to reduce the impact and “the number” of IR35 enquiries into compliant taxpayers, reminds Mr Piper.

“HMRC needs to make sure that the[se] reforms in process… are carried through,” he adds.

“Small businesses which need to contract through a company [should then have] the confidence to do so without worrying about an unwarranted challenge.”

Fellow forum member Ms Cottrell, an ex-tax official who runs an IR35 advisory, thinks that 250 IR35 cases at any one time sounds “about right,” given that 40 HMRC staff are on hand. This cases figure is slightly above what an under pressure taxman pledged to a panel of MPs in 2012.

Writing today for ContractorUK, Ms Cottrell says: “If the IR35 population is around 200,000, then one positive to take from this is that those affected by IR35 are not being targeted unduly compared to any other taxpayer group.”

But according to the boss of Tax Networks Ltd, Chris Leslie, who was formerly the Revenue’s head of investigations, the more contractors that are targeted; the less the Treasury’s coffers will benefit.

He told ContractorUK: “My very basic computation [of the IR35 enquiry yield figures from 2009-2014] suggests…to me that the more IR35 cases taken up by HMRC; the worse their results are.

“While the soundness of my reasoning is restricted by the published statistical data, and flat line averaging analysis, on this basis my drawn conclusion is that HMRC are incompetent in dealing with 250 IR35 cases” at any one time.

Meanwhile, in Ms Cottrell’s piece today she asserts that one less Forum meeting won’t bother contractors, and nor will the minutes from those meetings being shorter (as they became in February).

As for meeting just three times a year, Mr Piper agrees. “The Forum wants to bring in other specialists where needed, so that we can make sure specific issues can be dealt with effectively.

"[But] having completed the IR35 Review, there’s perhaps less need to drag specialists from HMRC and outside halfway across the country to meet face-to-face in London every quarter," he said.

In line with the new timetable, the February IR35 Forum said it would hold its next meeting in July, after the general election, the outcome of which will not affect the Forum’s existence.

This will likely disappoint Mr Leslie. “The IR35 Forum should be immediately disbanded,” he said last night.“That would save the public purse from expending the travel costs and downtime of [at least] six HMRC personnel, including policy leaders, of attending subsequent Forum meetings.”

Editor's Note: UPDATE -- 23 April 2015 -- HMRC's updated guidance on the assurance process, aimed at contractors' public sector clients, has been published.