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'Rogue' advisors cash-in on IR35 fears

Freelance professionals are failing to ‘look before they leap’ when they hire an advisor to manage their finances because of the angst surrounding ambiguous tax rule IR35.

The growing number of ‘freelance specialists’ offering payroll, invoice, accountancy and tax services are being taken on by limited company owners as potential advisors on the complex law.

Increasingly, newcomers to freelancing rush to hire a tax or finance ‘expert,’ hurried by the fear of being caught with no ‘solutions provider’ in the event of an IR35 investigation.

“Many companies now advertising as ‘tax experts’ are unqualified,” Simon Dolan, managing director at SJD Accountancy said in an interview with Freelance UK.

“The person a freelance contractor is likely to end up speaking to will be a salesman, whose sole job is to sell services of the company, and not the correct solution for that individual’s particular circumstances,” he said, referring to a rise in the number of online ‘solution’ providers.

“Unfortunately, as the freelance sector has grown, so too has the number of tax advisors who are ill-equipped to provide professional advice, many of whom sprang up following the introduction of IR35 legislation.”

HM Revenue & Customs yesterday refused to be drawn on whether such providers were best-described as ‘rogue advisors’ – self-appointed ‘specialists’ who create the impression they are IR35-competent.

“It is not for HMRC to comment on the suitability or motive of such advisors,” a spokeswoman told Freelance UK.

However, she added that Revenue & Customs considers some micro business advisors “sometimes present a too simplistic picture of whether the Intermediaries legislation (IR35) applies or not.”

Freelancers are advised to be wary of statements made about the level of expenses that can be claimed, especially when the provider claims its offering is ‘HMRC-approved.’

“IR35 still worries many freelance contractors, particularly the first-timers,” SJD said in a statement.

“Having come from a permanent position where they had their tax and National Insurance deducted at source and simply received a wage, to getting their first contract; some first timers will simply search on the Internet for the first available company to provide them with advice on tax. Whatever you do, don’t simply pick the first one that comes along.”

Kate Cottrell, founding partner of Bauer & Cottrell, the IR35 specialist advisory, urges freelance contractors to employ vigilance in a crowded market place.

“It is apparent that there are lots of IR35 ‘solutions’ on the market,” she said.

“If a contractor is entitled to receive a payment or benefit which can reasonably be taken to represent remuneration for the services provided, then any ‘solution’ should include a full review of the written terms against a background of a thorough understanding and interpretation of case law precedent.”

John Kell, political researcher at the Professional Contractors Group (PCG), believes it is unclear if there has been a rise in the number of so-called ‘rogue’ advisors since IR35 came into force.

“Our members occasionally report all sorts of weird and wonderful advice being given to them by accountants who are fundamentally sound, but do not have a detailed grasp of IR35.

“The real issue for freelancers is probably decent accountants without the correct detailed knowledge; ‘rogue’ operators are probably a secondary concern.”

He added that tax law “affecting freelancers is complex and becoming ever-more so.”

“IR35 has always been a niche area for accountants, and with ever-more in-depth knowledge required to advise a freelance correctly, financial advice for freelancers is more of a niche now than it ever has been,” Mr Kell said.

Chartered accountants advise the self-employed to beware solution providers which promise an excessively high tax-free salary, or try to impose long term contracts.

Meanwhile, the PCG has launched a ‘Quality Accountant’ scheme. This is designed so freelancers can see from the outset an advisor has completed a training course covering IR35, S660 and other tax issues pertinent to freelance professionals.

The trade body said: “Freelancers who see an accountant displaying the ‘QA’ logo can therefore have confidence that that accountant knows what’s what where freelance tax issues are concerned.”

Jun 23, 2006
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