Minutes of the latest meeting of the IR35 Forum shows that the external members thought that 'IR35 needed to be better publicised than it currently is and suggested that very few people knew about it or if they had heard about it knew what it is or would know whether it applied to them.
Another item which emerged at the August meeting of the Forum is that the controversial 'business entity tests' are being used for a purpose they were never designed for. Some end-users are asking contractors if they had passed the tests, and if not were forcing them into IR35 or on PAYE. In fact, these tests don't show that anyway, they are meant to indicate the risk of an investigation not of a status.
The Forum also asked for feedback for the members and interested parties into the changes to structure and procedures which were implemented last year.
The IR35 Forum is a body which comes under the auspices of the Office of Tax Simplification (OTS) and comprises members of trade associations, industry representatives, tax experts, interested parties from the freelancer world and staff from HM Revenue and Customs. They meet about every quarter to discuss, debate and decide on issues relating to IR35. They have come in for previous criticism when they failed to recommend the abolition of IR35 and also for the introduction of 'business entity tests' to determine risk of an IR35 status enquiry.
Raising the profile of IR35
However, at their last meeting in August, considerable time was spent debating how IR35 could be better publicised including the possibility of advertising in trade journals. Although the IT sector and other groups of highly paid freelancers are aware of IR35, the Forum believes that many other groups who should be applying it remain ignorant.
They were also concern that many small accountancy firms do not either understand or want to advice new clients that they have a back-dated tax liability.
The Forum looked at 'creative' ideas about how to raise the profile of IR35. It was suggested the use of 'hard copy' (although this was considered 'unlikely'); advertising in some trade specific journals where it was possibly less well known about and there has been a recent rise in 'personal service companies'; and targeting communications about IR35 around 'lifetime events' such as when a person incorporates for the first time.
The guidance which is currently available via the website was not thought to be user-firendly and was in need of revision.
Business Entity Tests (BET)
The Business Entity Tests were introduced as a way for small businesses to self-assess their risk of an IR35 status investigation. They were met with some considerable criticism when they were introduced last year and it would seem that more than 12 months on there is still concern among the Forum members who introduced them.(See: IR35 Forum members slam new IR35 tests - May 2012).
Agency group, the REC, said a snapshot survey of its members showed that people were still not content and felt that the tests were focusing on the wrong questions and/or groups. Freelancer trade body, the PCG, who were instrumental in creating the tests, said it had not surveyed its members refently and HMRC said that there was little available data.
It also emerged that the tests were being used for completely the wrong purpose, as some freelancers were being asked by 'engagers' if had taken and passed the tests and
if they admitted to having failed they were forced onto PAYE or to operate IR35.
In reality the tests were never devised to show this, the intention is to provide contractors with an indication of the likelihood of getting an IR35 investigation, which need not have a bearing on the likelihood of being insider IR35.
Contract Review Service (CRS)
A report on the HMRC's CRS Helpline shows it is manned by three status inspectors from Northampton, they aim to provide 'certainty' on whether a contract is compliant or not with IR35. An average call lasts 15 minutes.
To the year ending March 2013, there were 80 requests for opinions. Of these only 10 have so far received written opinions, the other 70, for a variety of reasons, such as have not.
The specialist compliance teams were praised for their professional approach to IR35 investigations. It emerged that enquiries are closed 'quickly' if the contractor could demonstrate he was outside IR35.
HMRC explained it will approach end clients in most high risk cases and only in very exceptional circumstances will HMRC not approach the end client in order to check facts. HMRC added that they would not be doing their job properly if they just accepted information at face value and didnít test what they were being told.
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Susie Hughes © Shout99 2013