New IR35 rule 'could catch many freelancers'

A staffing body yesterday told the government to clarify last year’s statutory change to IR35 based on concern that the amended legislation could end up catching “many" freelance contractors.

Urging clarity from HM Treasury and Revenue & Customs, the Association of Recruitment Consultancies said the state’s proposal to bring 'office holders' under IR35 was "very broad".

Taking issue with section 5(3) of ITEPA - where what ‘office’ includes is spelt out - the ARC said that passing it unchanged would represent a ‘significant extension’ of IR35’s application.

Enshrining ‘office’ in IR35 to include “any position” with an “existence independent of the person” holding it and which “may be filled by successive holders,” would hurt recruiters too.

The association explained: “IR35 has commercial implications because remaining outside of it makes assignments more attractive to candidates and helps to keep down the costs to hirers.

“The solution is to amend the legislation to make sure that ‘office’ is clearly defined… [or] it would be helpful if [officials] could clarify the aims behind the proposal and its meaning.”

ARC chair, Adrian Marlowe, acknowledges that some experts say case law already limits the definition of what an ‘office’ is, therefore limited the number of freelancers and contractors affected.

But based on how the IR35 rules have been interpreted by judges to date, he fears that new “judgements could well be different [to case law] once Finance Bill 2013 passes into law.”

Recruitment law firm Lawspeed, founded by Mr Marlowe, last month highlighted how being outside IR35 remains the goal of many attendees to a recent workshop it ran, given that a freelance contractor (caught by the legislation) who earns £67,000 faces a liability of £10,000.

Fortunately, then, the Treasury is “not planning” to use last year’s amendment to “scoop more contractors into IR35 tax rules”, the ARC conceded, citing a “government source”.

Nevertheless, the group maintains: “Wording within section 5(3) of the government’s proposal is actually very broad and could result in many contractors being caught by the new legislation…the ARC believes that the proposals are not safe as they currently stand.”

At the very least, say commentators for Tax Journal, the amendment suggests that “there will be no let-up in HMRC’s focus on IR35 arrangements and reliance on the IR35 legislation.”

Editor's Note: Further Reading - Contractors' Questions: How will the IR35 amendment affect me?


Feb 11, 2013
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