IR35 information updated by HMRC

Monday 23 June 2014

IR35 compliance is likely to be made easier thanks to new guidance released by HM Revenue and Customs (HMRC).

The Frequently Asked Questions section has been replaced by 19-pages of information design to be much easier to understand and navigate for contractors.

The new guidance has been developed in conjunction with the IR35 Forum and is split into six sections: 'Intermediaries legislation', 'How to work out if it affects you', 'How it applies to you',  ‘Deemed employment payment', ‘Contracts’ and ‘HMRC enquiries'.

Carl Henning, senior solicitor at Brookson Legal Services Limited commented: "Any help which HMRC can provide to contractors in navigating through the minefield of IR35 should be welcomed and this guidance is no different. Whilst it is unlikely to contain answers to all contractor questions, it is a step in the right direction from HMRC."

It seems that the new guidance takes into account the statutory extension of IR35 to 'office holders' back in 2013, not to mention administrative reforms from 2012.

As expected, the document lays down clearly who will fall under the regulations, providing prompts for the self employed to ascertain whether or not they are responsible for IR35.

"When IR35 applies responsibility for ensuring compliance with the legislation always lies with the intermediary," the guidance states. "Clients and other parties involved in the arrangements - like recruitment agencies – are not liable to operate IR35."

The information also provides details of what to do if an individual disagrees with a verdict from the IR35 Contract Review Service. Those in disagreement will have their papers passed to a local IR35 inspector and a reconsidered opinion will be given.

Updates to the guidance comes after the government released its response to the findings of the House of Lords Select Committee on Personal Service Companies.

In its reply, HMRC indicated that there would be little change to IR35 in the future but did acknowledge some of its shortcomings, including its enforcement. This indicates that there will be some stability for contractors in the future.

"The government recognises that many individuals choose to work through their own limited companies; sometimes referred to as personal service companies, and appreciates the positive contribution to the economy of those who choose to work for themselves," the response said.

"However, people can also use intermediaries to disguise what would otherwise be employment income. The IR35 legislation seeks to ensure that what is properly employment income is taxed as such and tackles tax and National Insurance avoidance through the use of intermediaries."

Yet, the response continued, HMRC understands that IR35 brings with it certain hostilities from those who genuinely conduct business through their personal service companies.

In a bid to solve the problem, the government has pledged to work with the IR35 Forum to raise awareness of the legislation - the new guidance being the first step in doing so.

Following the release of HMRC's response, Brookson welcomed the sentiment and the stability the verdict is likely to bring. Indeed, it has brought some finality to what has seemed like a long-running debate.

The introduction of new guidance on IR35 is similarly welcomed and it is hoped that contractors, the self-employed and those that work with them will find life easier in the future.

Speaking on May 12th, Martin Hesketh, managing director of Brookson, said: "When it comes to IR35 it's a case of better the devil you know. It was good to hear that the HMRC sees the value of self-employed workers and the legitimacy of personal service companies as a way of working."

By Victoria McDonnell

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