The IR35 Forum was set up in 2011 to explore new approaches to the way IR35 was administered and monitor progress. It came about after the Government decided - on the recommendation of many of the members of the Forum - not to abolish IR35, but to improve the way it was administered.
Freelancer group, the PCG, has long pushed for some form of 'business tests' to distinguish between and IR35 business and a non-IR35 business. They were instrumental in advising HMRC via the IR35 Forum in its latest tests - but have now led to condemnation of the final version of the 'business entity tests'.
HMRC's new guidance is intended to inform contractors about HMRC's risk-based approach to IR35 compliance; help contractors work out which risk band (high, medium, low) they are in, what these bands mean and give example scenarios to illustrate when and why IR35 will apply to an engagement and when and why it will not.
It does not change the legislation. The determination of an individual’s employment status on a particular assignment under IR35 legislation remains as it was previously. This is about how HMRC will approach the enforcement, administration and risk profiling of that legislation.
But within hours of the guidance being published, members of the IR35 Forum who advised HMRC and the Treasury on this approach; namely agency groups APSCo and REC, freelancer groups FCSA and the PCG, and small business body, FSB, issued a joint statement saying that the new IR35 guidance failed to take into account key elements of their advice.
These organisations said they are 'united in their concern that the measures suggested in the HMRC report will not go far enough and will not reflect the new approach promised by the Government at the 2011 Budget'.
They said that it felt that the questions, the scoring and the proposed use of the business entity tests are counter-productive and represent greater complexity rather than a simplification of IR35 that had been the Government’s goal.
The feeling of frustration was summed up by Ann Swain of agency group APSCo who said external forum members had, 'worked really hard to come up with a new approach and had achieved positive progress in some areas' but, she added many felt exasperated by HMRC’s reluctance to listen to their advice concerning the new tests.
Chris Bryce, PCG Chairman and IR35 Forum member backed this view said: “HMRC’s new guidance demonstrates their fundamental lack of courage and commitment to improve the operation of IR35. While the external members of the Forum have worked tirelessly to develop innovative solutions, HMRC appear at this stage to have opted for a risk averse approach that will not deliver the improvements that are so clearly needed. ”
The main unrest from the Forum revolves around the proposed ‘business entity tests’, or more specifically, the scoring of the tests. External members wanted HMRC to amend the scoring of the tests, branding the distribution of points as unfair and not reflecting the realities of how businesses operate.
The group now complain that HMRC have refused to alter the allocation of points. Reflecting his unease on this issue Brookson's Martin Hesketh, FCSA’s representative on the Forum said: “The proposed scoring system undermines the business entity tests altogether. It will push a disproportionate number of businesses into the high-risk category, and in so doing will prevent genuinely high-risk cases from being identified. An alternative scoring system, backed by a majority on the Forum, was suggested but to date those suggestions have been rejected by HMRC.”
The IR35 Forum will now monitor the impact of the new measures over the next 12 months in what HMRC have termed, ‘the test and learn phase’. Over this period the externals will continue to challenge HMRC to adopt a more radical approach. Gillian Econopouly, Head of Public Policy at REC, said: “Although we are disappointed by the progress to date, we will continue to strive for a better outcome for businesses affected by IR35.”
Shout99 will be providing a detailed analysis of the guidance and more expert comments - so keep checking the website for updates
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Susie Hughes © Shout99 2012