HMRC told the recent meeting of the IR35 Forum that it has restructed its compliance working on IR35 with cases now primarily carried out by three teams,comprising experienced officials on status work. The three teams are physically located in Croydon, Edinburgh and Manchester, but cases are not restricted to their particular geographical area and can be drawn from anywhere in the country. The overall strategy is overseen by one individual.
HMRC said that 'this focused approach has allowed for an increase in the number of reviews taken up by HMRC and also reported an improved turnaround timeline of cases'.
HMRC was reporting back to the IR35 Forum, a body comprising representatives of trade groups and industries associated with the freelancer sector and specialist advisors, as well as HMRC officials. The Forum, which is aimed at improving the administration of IR35, has been under criticism for the publication of the so-called business entity tests for IR35.
Other issues discussed at the recent meeting included:
During its most recent meeting in July, there was a discussion about the years covered by a HMRC review. HMRC confirmed that when a review was started they would state what period would be covered and the review would initially be restricted to that period. However, this did not seem to be set in stone as HMRC said that if compliance issues were uncovered then it would seek to consider earlier years in line with general compliance practices.
At the meeting, HMRC was asked how it was measuring approaches taken across their different offices. HMRC advised that any inconsistencies of working practices in different offices should be minimal since the restructuring and introduction of single strategic oversight of the three teams.
However there might be an exceptional occasion where an inspector outside of these teams might take up an IR35 case but, increasingly, HMRC is looking to concentrate the work in the three specialist teams.
HMRC were asked if they could advise of any trends of businesses or end users of the cases taken up and advised that there are no details currently held of a particular area or sector, although over time a picture could develop.
Business entity tests
When the IR35 business entity tests were publicshed, they met with condemnation and criticism. They had intended to provide a yard-stick for freelancers to measure their level of risk of being subject to an IR35 invesitgation, but many, including members of the IR35 Forum, argued publicly about the tests and the scores or weightings attched to them.
This was the first meeting of the IR35 Forum since the tests had been announced.
HMRC was asked if there was any analysis available of the impact of the business entity test, in particular if they could comment on the proportion of people using them. HMRC advised that it was too early to be able to report back but that they would provide some feedback at the next meeting.
It was suggested that changing the weighting of any of the questions risked possible confusion and it was suggested that such changes only be made once and then in around two years time on the basis of practical experience. HMRC does not currently hold an analysis and advised that they have to strike a balance between asking their staff to extract data against actual compliance work.
HMRC said they would continue to provide an operational update to members and would also value and be seeking feedback From forum representatives of their own operational experiences of the tests and the new specialist teams.
Taxation of Controlling Persons Consultation
Although this is technically outside the remit of the IR35 Forum, some members asked for it to be discussed. The consultation is being carried after the Government announced its attention to clamp down on individuals, primarily as a result of high-profile abuses in the public sector, who operated through limited companies rather than on the payroll in order to avoid tax and NI contributions.
The Government has suggested taxing people who are integral to an organision or a 'controlling person' at source. The proposal is currently subject to consultation and controversy.
It was commented at the meeting that IR35 currently covers these types of persons. There was a discussion about the period of time interim managers are in post and whether that means that a particular post could turn into one of employment simply in the light of duration.
HMRC advised that the consultation was still underway and that nothing has been decided.
Real Time Information (RTI) and IR35
HMRC provide a short presentation about Real Time Information (RTI).
In relation to IR35, it was noted the two part question six currently asked on the P35 will be merged into one “Are you a service company who has operated the Intermediaries legislation (sometimes known as IR35) or the Managed Service Companies legislation?”. The question will be embedded into the PAYE regulations for 2013/14 and it will become a legal requirement to answer it on the last return for the tax year.
HMRC will expect Full Payment Submission returns from employers when salary payments are made. That includes 'service companies' who make payments under PAYE.
It was noted that the tax and National Insurance contributions payment dates for IR35 will remain unchanged. External representatives appreciated that in particular, the balancing payment date remains the same. It was noted by representatives that the timetable for administering IR35 legislation does not fit neatly with the way RTI is designed to operate.
HMRC was asked if payments include dividends and agreed to provide written advice on this point.
HMRC said it would continue to update the Forum on the RTI programme and would provide more information about its specific impact on IR35 customers.
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Susie Hughes © Shout99 2012