IR35 contract review data released

Friday 16 January 2015

HM Revenue and Customs (HMRC) has released data on the recommendations it will be taking up from the IR35 Forum on the Contract Review Service (CRS) and which it agreed with.

In total, five of the 32 recommendations that the IR35 Forum made in its administrative review of IR35 are related to HMRC's CRS. HMRC only accepted one of these but agreed to a recommendation that should hav its content on IR35 revisited, which includes information about CRS.

Therefore, there are two potential CRS related recommendations that are set to go through. The first is for to publicise CRS better and make it clear that this is a confidential service. Secondly, HMRC will think about publicising CRS on its web pages relating to non-statutory clearances.

HMRC introduced CRS so that customers, such as limited company contractors and sole traders, could get the taxman's view on contract terms for certain engagements. It was intended that HMRC could then move forward in preventing tax avoidance by offering customers education and support. It was hoped that this would help HMRC move away from dealing with avoidance and evasion in a reactive way rather than a proactive way.

While the move is supported by the IR35 Forum as an essential way of opening channels of communication, it was agreed that this and the IR35 helpline need to be publicised more.

At present, there are three specialist advisers operating the helpline and the CRS who provide advice for free on all kinds of IR35 queries.

It was hoped, when HMRC introduced the helpline, that it would let customers speak freely and independently about their IR35 query without having to worry about what they said being used to start an enquiry into their tax affairs. To make this happen, callers are allowed to stay anonymous and HMRC says that any information that they provide will not be passed on to the employer compliance team.

However, HMRC has noted that it is widely believed that information relayed in these calls is passed on to the team.

HMRC is able to pass on information discussed through CRS to the employer compliance team if a customer specifically asks them to do so.

As part of the service, HMRC reviews the terms of the contract sent in as well as any fact that it sees are relevant. From there, the main thing it asks is if the relationship between a client and a worker means that the latter is employed.

Over the course of 2013, HMRC said that it received 80 contract review requests and, on these, it was able to give an opinion on 12. In 2014, the number of contract review requests sent in fell to 64 but the number of opinions given raised to 16.

During 2013, ten contracts were considered to not be caught by IR35 and two were thought to be caught. The next year, 14 contracts were thought not be be caught by IR35 and two were considered caught.

Carl Henning, senior solicitor with Brookson Legal Services Limited commented that “clearly not everyone who approaches HMRC will be caught by IR35 if they have a review with the CRS, however, there are quite a few hoops to jump through before HMRC will actually give a decision”. “Contractors using recruitment agencies to source work will find it especially difficult to get a decision from HMRC as they will need to produce the upper level contract between agency and client. Such terms and commercially sensitive and rarely provided to contractors.”

With the advent of the public sector Required Assurance regime for off payroll workers, government bodies have been pushing public sector contractors to use the CRS in order to avoid being enrolled onto the department’s payroll (and having tax and NICs deducted at source). However, it is clear from these statistics that contractors are still reluctant to use approach HMRC for advice.

Carl further commented that “HMRC have an uphill struggle to convince the public that this service is confidential. Tax payers are inherently cynical about HMRC’s ability not to use information to launch a full IR35 enquiry. Indeed, the stakes are high for contractors if they poke their head above the parapet. If the CRS is to become a useful tool for contractors,  HMRC need to build this trust quickly.”

By Victoria McDonnell

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