A key point for contractors and freelancers to note from the IR35 Forum’s meeting on August 1st is that all the new IR35 processes and administration from April 2012 are part of a pilot exercise, writes Kate Cottrell, co-founder of employment status advisory Bauer & Cottrell.
It is now time to review and evaluate everything IR35-related and to this end, most of the meeting was dedicated to coming up with a framework for the evaluation process.The main message the forum is sending to freelancers is that there is still a lot of work to be done with IR35 and its administration, extending to raising IR35’s profile among the “general populace.” The results thus far show the following:
- There is still a lack of awareness of IR35 across whole industry sectors and lower paid individuals
- There is still a lack of knowledge of IR35 among some advisors and accountants
- Some individuals are happy to ignore IR35 believing it is “grey” area and although not provided, HMRC expects that the number of companies completing P35 form Question Six (Are you a service company and, if so, have you operated IR35?) is lower than it should be
- HMRC’s Contract Review Service is not really delivering, mainly because many individuals still feel that they could be subject to a full IR35 investigation if they use it.
- Not surprising to me, there is evidence that Business Entity Tests (BETs) are not being used as HMRC intended. As I predicted at the outset, the tests are being used as a Status test rather than to indicate the level of risk of an investigation.
- HMRC IR35 investigations, where early closure was promised, where an outside IR35 position has been demonstrated is working really well, and cases are being closed between one and six weeks.
At the forum’s meeting, HMRC confirmed that the various practices being adopted by the public sector following the review of off-payroll appointees is not an HMRC matter, but is an HM Treasury issue, so the inconsistencies of approach to this look set to continue.
All change for IR35 processes/administration?
The ultimate message for clients and freelancers is that the IR35 pilot continues and is about to be evaluated so IR35 processes may change.IR35 remains the most important decision that has to be made by most freelance contractors, so with changes afoot it is vital to properly review contracts and most importantly the actual working practices.
Lastly, a word of warning. The IR35 “status tests” on some industry websites promising to improve risk profiles offer no comfort at a time of an increased number of IR35 investigations and the imminent launch by HMRC of an IR35 awareness programme.