IR35 comes under fire once again
In May 2012, HM Revenue and Customs pledged that they would simplify the system they used to manage IR35, with what they called the ‘Revised Approach’ to administration. This was designed to shorten the length of time it would take to conduct an IR35 enquiry, in order to make the process simpler, easier and less time consuming for all involved. However, it appears that any relief felt by contractors at the time could have been misplaced as it has come to light that they are failing to abide by the terms that they set out at the time.
Commentators have noted that there does appear to have been some attempt to honour their promises, but that this resolve seems to have been slipping over the last couple of years, meaning the situation has reverted to one which doesn’t seem to recognise its users’ interests at all.
In 2012, HMRC reassured contractors that if they could provide sufficient evidence to the department in the early stages of an investigation, then it would be closed down the review process at that point and agree that they would not conduct any further investigations on that freelancer for the coming three years. Many commentators were sceptical of this promise at the time, and their fears appear to have been justified.
Many IR35 enquiries that have been conducted over the last three years have not followed this pattern, with the majority of freelancers being unable to persuade enquiries that they are suitably ‘low risk’ through the Business Entity Tests, which have subsequently been retired. This has meant that contractors have been required to find alternative evidence in order to satisfy enquiries, which has proved increasingly difficult.
The problems with providing the proof come, at least in part, from the fact that the ‘Confirmation of Arrangements’ or ‘Statement of Working Practices’ documents which were supposed to serve as proof from both the client and the contractor as to the nature of their arrangements. These were designed to demonstrate that an individual was working outside IR35 for the purposes of HMRC’s investigations.
However, the department are no longer accepting these statements as evidence in this kind of claim, despite the apparent benefits of having a declaration from the end client to show the nature of the contract, claiming that the necessary level of fact-finding is not required to complete them. This means that, in practice, it is almost impossible to satisfy HMRC’s requirements for closing a case early. The controversy over IR35 rages on, with individuals and industry experts offering their opinions and objections to the dedicated IR35 Forum regularly.
If you want a better understanding of the legislation and are keen to ensure that you do not fall foul of the changes made, our Guide to IR35 provides plenty of information about how to ensure you are compliant. We can also advise you on contractors’ expenses and any other issues you wish to learn more about.
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