During the meeting, HMRC circulated a document of the proposed way forward on HMRC's approach to IR35 based on customer risk segmentation. This would lead to an emphasis on help and support to low-medium risk cases and targeted compliance activity against high risk cases.
HMRC said that there was a need to be able to address wider low level risk by use of interventions other than traditional IR35 reviews. HMRC described the role of a proposed IR35 National Compliance Unit and how it might operate by, for example, identifying sectors were there was a problem understanding IR35 and targeting additional information at them.
It was suggested that before targeted letters are issued, general guidance should be published and that HMRC committed to reviewing its gudance which some felt was inadequate.
In the case of what HMRC considered high risk cases, IR35 Compliance Teams would be responsible for reviews following the same approach to compliance activity as in other areas.
HMRC acknowledged that where a full compliance review is undertaken, the focus should be on concluding the review as quickly as possible which it felt was important both to minimise disruption to the taxpayer and to make the most effective use of HMRC's resources.
Ironically, this comes in the week when there have been reports of a freelancer who recently won his IR35 at a tax tribunal after an eight year investigation by HMRC (See: Win for freelancer after eight year IR35 investigation - Shout99, July 2011). HMRC explained that in part delays were because of the need to acquire necessary information and unlike other status cases, IR35 involved obtaining facts from the end client.
HMRC reiterated its view of the previous meeting when addressing risk assessment in so much that it was content to share details of its broad risk strategy but would not be able to share details of its specific risk profiling.
However, HMRC acknowledged that in the early years of IR35 it had adopted 'a less refined selection criteria' than used now and that processes for selecting IR35 cases had been improved. The proposed new strategy whereby low-mid risk would be addressed through interventions other than compliance reviews, should address the current position where lower risk cases have been the subject of a compliance review.
HMRC and industry representatives discussed the various avenues available for education and improving general guidance and information about IR35.
HMRC reiterated that the function of the IR35 Helpline is purely a customer service capacity and confirmed that contact to the helpline would not initiate any compliance activity. After some discussion about the precise role of the helpline, HMRC confirmed that it could not provide certainty on a contract and in reality could conly provide generic advice. If there was a request for an HMRC opinion, HMRC would ask if the client could be contacted. They confirmed that HMRC would not approach the client without consent from the caller.
They also discussed the possibility of creating an audit trail of calls.
HMRC said that consideration was being given to the establishment of a Business Educational Support Team to help and educate employers, end clients and agencies. HMRC already provided this type service more widely. An example given where this could be needed was that employers were being advised to engage their workers via a company in circumstances where there was little regard to the obligations of such arrangements would place on the workers. Neither the employer nor the worker seemed to be aware that there might be IR35 implications.
An action point from the last meeting in May was that members of the Forum were asked to supply specific examples of HMRC reviews being targeted inappropriately at sectors or geographically or specific current IR35 cases that are over 18 months old. HMRC said they had yet to receive any details in respect of these action points but they would be pleased to receive such information if it comes to notice.
The other two action points fell on HMRC to feedback to the Forum. HMRC advised that draft guidance and outline ‘gateway' test is work in progress and the feasibility of providing an audit trail for phone calls to the helpline was covered at the meeting with further work proposed for the future.
HMRC said that it had a lot to consider in taking a more holistic view of their risk analysis and developing their operational strategy and will provide an update at the next meeting.
It was agreed that HMRC would take the views of other stakeholders separately on behalf of the IR35 Forum and that those views would be shared with the Forum members.
HMRC asked Forum members for their view on HMRC's current guidance on IR35, i.e. what it currently did well and what we didn't do so well - identifying gaps in the guidance accordingly.
Report of the first meeting of the IR35 Forum in May: IR35 Forum offers 'some' transparency - Shout99, June 2011.
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Susie Hughes © Shout99 2011