HMRC's minutes of the third meeting of the advisory group say: "HMRC expressed gratitude for the feedback so far received but were concerned that there was a risk that not enough detailed, specific information was being provided about areas where it was perceived HMRC needed to improve its administration of IR35.
"HMRC were mindful that in the absence of detailed information, development work in such areas as guidance, conduct of reviews etc. there was a risk that HMRC would make assumptions about what is considered wrong with the way IR35 is administered. Representatives considered that there was a misunderstanding as they thought the Forum was only at the stage of agreeing the broad framework areas. Some representatives felt hampered because they had been asked to be discrete with the material provided by HMRC and had not therefore consulted with members/colleagues."(Editor's note: this paragraph added later to original article)
The IR35 Forum is comprised of representatives from HMRC, industry and trade bodies. It was established after the Budget with an aim to help fulfill the commitment that HMRC would improve its administration of IR35.
As a result, it was agreed that HMRC would set out the broad framework areas where specific detailed comments and views were being sought and that Forum representatives should consult their own members and colleagues in order to obtain as comprehensive and detailed a view as possible.
Broad framework areas
HMRC agreed to publish the outline of a new organisational structure chart previously provided to the Forum but emphasised that the chart was very much early thoughts on how HMRC might restructure in order to identify customer groupings and respond appropriately to each group.
It listed four framework areas where it was seeking specific detailed comments on how to make improvements:
- Helpline - role and method of operating
- Guidance - content, accessibility and target audiences
- Reviews - opening, conduct and closure of reviews
- Risk - which types of businesses represent high or low risk and why
HMRC explained that changes to the way the Helpline operates could be made to accommodate previous suggestions made by Forum representatives, particularly allocating callers a reference number and making clear at the outset of calls that they are not used to initiate any compliance activity.
This led to a discussion about the anonymity of the caller. HMRC explained that that was dependant on what the caller wanted, for example general advice could be provided on an anonymous basis, but if the caller wanted a definitive opinion on a contract, then HMRC felt it would need to have more details and probably seek to contract the client.
This led to some discussion about the purpose of the Helpline and who uses it. Members of the Fourm agreed to provide feedback of these experiences of their members/colleagues and HMRC said it would revisit the role of Helpline in terms of what it can achieve.
HMRC reported that those working on the IR35 Helpline had recorded the ten most frequently asked questions and that as part of the process of reviewing the current HMRC guidance, HMRC will ensure that the guidance addresses these. HMRC wants to receive further detailed comments from the Forum about the guidance, particularly in terms of the extent to which it meets customersí needs.
Operational work (reviews)
HMRC explained that as part of looking specifically at its operational work, it was in the process of arranging to meet with a number of external stakeholders to seek their detailed views on HMRCís administration of IR35.
In this area there seemed to be a difference of opinion around the table and in meetings. There was annoyance that HMRC do not appear to close a review early when it becomes apparent that is the case; another complaint was that HMR does not explain why it decides not to pursue a case - leaving the matter hanging in the air.
In its defence, HMRC said that across compliance generally, and IR35 specifically, there were already practices in place to identify those cases that should be pursued and those that should be brought to a conclusion (for a variety of reasons). For example, recently a case was closed following new information obtained during an interview. These processes will be built upon as part of the IR35 changes in order that reviews do not continue longer than necessary.
There was an acknowledgment that recently there had been a marked improvement on the closing of outstanding cases by HMRC.
HMRC advised that although they are committed to concluding reviews as soon as feasibly possible, they are sometimes hampered by non-cooperation.
It was suggested that HMRC could improve its administration of cases, with clearer lines as to who is responsible for each case and better support for compliance staff.
Identifying and informing 'low risk' customers
In previous meetings, HMRC has discussed a means of identifying risk groups. It said that there are two distinct low risk groups which need to be considered in terms of guidance and support:
- individuals working through intermediaries
- end clients/employers
HMRC believe that it will be more challenging to provide guidance and support to many end clients.
HMRC had already made clear that while it would give details of its broad risk assessment it would not share information about its more detailed risk profiling. This position was confirmed at the latest meeting.
It was suggested that HMRC should risk profile based on whether or not the taxpayer is in business on their own account, rather than on the nature of individual contracts. But HMRC advised that the way IR35 is structured, the legislation applies contract by contract.
There has been discussion and concern for a long time about what use the 'service companies question' on the tax return was put it. HMRC confirmed that it is used as part of its wider risk assessment process. It was acknowledged that in many cases the question is left blank which itself can be risk profiled against other entries on the return which would tend to indicate that the question should have been answered. The question is only one factor in HMRCís wider risk profiling.
HMRC said it would try to only select high risk cases for review, but inevitably there would also be some where it transpired that IR35 did not apply and HMRC would try to close these early. It was requested that HMRC give more information about why cases are closed and HMRC agreed to consider the providing greater clarity.
It was agreed that Forum representatives will present their collective views on a number scenarios and seek to identify common ground with HMRC and where they are grey areas.
Engagement with other stakeholders
HMRC asked Forum members to provide HMRC with the names of any stakeholders it was felt HMRC should consult. Two names were provided.
Any other business
It was requested that minutes reflect where there is disagreement rather than, as previously, imply that there is always unanimity.
It was also requested that HMRC engage with the Department for Business, Innovation and Skills (BIS), to identify common issues.
In summary, the action points from the meeting are that:
- Forum representatives to ask their members what their experiences have been with the Helpline and to feed back those experiences.
- Forum representatives to ask their members for specific views on how HMRC could improve its guidance, risk profiling and conduct of reviews.
- Forum representatives to provide HMRC with the names of any external stakeholders it is felt HMRC should consult with.
- PCG to provide Forum members with the PCGís end-to-end process paper in due course.
- Forum representatives to meet to consider the application of IR35 in 12 scenarios (to be provided by HMRC) and to report back to the next Forum meeting.
- Forum representatives to share with HMRC the names and circumstances of any current IR35 cases which are either long-running or otherwise causing concern.
- HMRC to share with Forum members the 10 most frequently asked questions the IR35 helpline has received.
- HMRC to publish the provisional organisational structure chart.
- HMRC to liaise with the BIS about the review of IR35 to identify issues of common interest.
The next meeting will be held on November 9, 2011.
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Susie Hughes © Shout99 2011