The Forum, under the auspices of the Office of Tax Simplification, was established to aid with progress on improving the administration of IR35. Its membership is a mix of HMRC officials, industry representatives and trade body.
Here, the agency representative Recruitment and Employment Confederation (REC), which is a member of the Forum, explains its position and the work which has been done to date.
Author Gillian Econopouly, REC Head of Policy, writes..
For nearly 18 months we have taken part in the IR35 Forum, the independent body set up to help HMRC develop a new approach to administering the IR35 (intermediaries) rules, which are intended to tackle false self-employment. The Forum was created as part of the 2011 Budget announcements when the Chancellor decided to retain IR35 as a piece of legislation but improve its implementation.
The REC, alongside other forum members such as PCG, the Chartered Institute of Taxation and the Freelancer and Contractor Services Association (FCSA), has encouraged HMRC to adopt new ways of clarifying the rules for contractors.
This is because too often, those who are legitimately in business of their own account are unnecessarily nervous about IR35 whilst the small number of those who are misusing personal service companies (PSCs) – either intentionally or otherwise – are not sufficiently aware of the rules. Giving more clarity to contractors is not only helpful to them but for recruiters who can place them on assignment with clients, confident they are doing so under the right type of contract.
Our aim has always been to secure more certainty for those who are less likely to be ‘caught’ by IR35 (i.e. liable for additional tax and national insurance payments) because they actually are in business of their own account, and at the same time beef up the targeting and enforcement of IR35 for those who are attempting to play the system.
As with any negotiation, we didn’t get everything we wanted from the Forum’s deliberations, but there have been some definite improvements. Alongside other professional bodies on the Forum, we lobbied successfully for the introduction of a new set of business entity tests that contractors can use to gauge their likely risk profile under IR35.
The tests are weighted to give more points (indicating a lower risk profile) for criteria that are harder to achieve, and which therefore show a greater commitment to running your own business, whilst very simple steps such as having a business bank account are allocated fewer points. The weighting system was suggested by a member of the REC Technology executive and we’re delighted that Government has adopted it.
New HMRC guidance on the Business Entity Tests can be found here.
The new tests aren’t perfect and we would like to see their calibration revisited in the coming year as they bed down. Although the tests are not mandatory, if a contractor is contacted by HMRC about IR35, they will first be asked if they have taken the business entity tests. If they have done so, and can satisfy HMRC that their answers add up, the Revenue has pledged to close the inquiry immediately and will not revisit that company for three years (unless their business practices change significantly).
This is good news as historically, there have been long-running IR35 cases that have been very damaging to contractors despite bringing in minimal, if any, additional tax revenue.
For recruiters, who are central to bringing the contractor and end user together, improvements to the understanding and implementation of IR35 can help their businesses run more smoothly and ensure candidates (contractors) have more certainty about the way they can operate.
For general coverage of IR35 policy and cases, see Shout99's News on IR35 section.
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Susie Hughes © Shout99 2012