Five bodies representing freelancers and small businesses on HMRC’s IR35 Forum claim that new guidance on rules to counter tax avoidance via personal service companies ‘fails to take into account key elements in their advice’, according to PCG (formerly the Professional Contractors Group).
Five bodies representing freelancers and small businesses on HMRC’s IR35 Forum claim that new guidance on rules to counter tax avoidance via personal service companies ‘fails to take into account key elements in their advice’, according to PCG (formerly the Professional Contractors Group). One expert called for new ‘business tests’ to be scrapped.
HMRC told Tax Journal today that the guidance would support the department’s new operational approach. ‘This new approach will be piloted over the next 12 months, with the IR35 Forum and others providing feedback. In light of the feedback we may then update the guidance,’ a spokesman said.
Minutes of recent IR35 Forum meetings indicated that HMRC stressed that the tests would be published on a trial basis and would be subject to review by the IR35 Forum.
PCG and the Association of Professional Staffing Companies, the Federation of Small Businesses, the Recruitment & Employment Confederation and the Freelancer & Contractor Services Association were ‘united in their concern that the measures suggested in the HMRC report will not go far enough and will not reflect the new approach promised by the government at the 2011 Budget’, PCG said in a press release yesterday.
The guidance sets out HMRC’s risk based approach to compliance and tells readers how to work out their ‘risk band’. It offers example scenarios to illustrate ‘when and why IR35 will apply to an engagement and when and why it will not’, but it is not a comprehensive guide to the rules.
‘IR35 is tax and NIC legislation which prevents people who use intermediaries from being better off than they would have been if their end clients had employed them directly,’ the guidance explains. Broadly, the legislation – introduced in 2000 – applies if ‘you work for an end client on terms which would have made you an employee if the end client had engaged you directly’.
Chris Bryce, PCG Chairman and a member of the IR35 Forum, said: ‘HMRC’s new guidance demonstrates their fundamental lack of courage and commitment to improve the operation of IR35. While the external members of the Forum have worked tirelessly to develop innovative solutions, HMRC appear at this stage to have opted for a risk averse approach that will not deliver the improvements that are so clearly needed.’
Martin Hesketh, managing director of the accountancy firm Brookson and a Forum member, said the new‘business tests represented a ‘significant step backwards’. While HMRC was clearly keen to clarify its approach and improve people’s understanding of the rules, the tests were ‘misguided and unhelpful’.
‘There are a number of elements of the new approach which we would see as positive,’ Hesketh said. But the business tests would add complexity without bringing improved clarity or certainty to the ‘medium’ risk taxpayers that the originally proposed business tests were designed to address.
The new guidance provided ‘more information about more realistic and relevant scenarios’ than earlier guidance, he added. ‘I would prefer that these [business] tests were completely scrapped and HMRC pressed on with the revised guidance and the improved scenarios.’
Philip Fisher, Head of Employment Tax and Rewards at PKF, said the government had ‘ducked the opportunity to address the serious issue of personal service companies, merely issuing some risk profiling measures that may be seen as threatening by many’.
HMRC said: ‘All relevant contractor bodies were consulted extensively in the writing of the guidance. Though HMRC wishes to provide certainty to as many contractors as possible without changes to the legislation, we do not feel we could go further, as this is complex anti-avoidance legislation. For those contractors who want complete certainty, we offer a confidential contract review service.’
Five bodies representing freelancers and small businesses on HMRC’s IR35 Forum claim that new guidance on rules to counter tax avoidance via personal service companies ‘fails to take into account key elements in their advice’, according to PCG (formerly the Professional Contractors Group).
Five bodies representing freelancers and small businesses on HMRC’s IR35 Forum claim that new guidance on rules to counter tax avoidance via personal service companies ‘fails to take into account key elements in their advice’, according to PCG (formerly the Professional Contractors Group). One expert called for new ‘business tests’ to be scrapped.
HMRC told Tax Journal today that the guidance would support the department’s new operational approach. ‘This new approach will be piloted over the next 12 months, with the IR35 Forum and others providing feedback. In light of the feedback we may then update the guidance,’ a spokesman said.
Minutes of recent IR35 Forum meetings indicated that HMRC stressed that the tests would be published on a trial basis and would be subject to review by the IR35 Forum.
PCG and the Association of Professional Staffing Companies, the Federation of Small Businesses, the Recruitment & Employment Confederation and the Freelancer & Contractor Services Association were ‘united in their concern that the measures suggested in the HMRC report will not go far enough and will not reflect the new approach promised by the government at the 2011 Budget’, PCG said in a press release yesterday.
The guidance sets out HMRC’s risk based approach to compliance and tells readers how to work out their ‘risk band’. It offers example scenarios to illustrate ‘when and why IR35 will apply to an engagement and when and why it will not’, but it is not a comprehensive guide to the rules.
‘IR35 is tax and NIC legislation which prevents people who use intermediaries from being better off than they would have been if their end clients had employed them directly,’ the guidance explains. Broadly, the legislation – introduced in 2000 – applies if ‘you work for an end client on terms which would have made you an employee if the end client had engaged you directly’.
Chris Bryce, PCG Chairman and a member of the IR35 Forum, said: ‘HMRC’s new guidance demonstrates their fundamental lack of courage and commitment to improve the operation of IR35. While the external members of the Forum have worked tirelessly to develop innovative solutions, HMRC appear at this stage to have opted for a risk averse approach that will not deliver the improvements that are so clearly needed.’
Martin Hesketh, managing director of the accountancy firm Brookson and a Forum member, said the new‘business tests represented a ‘significant step backwards’. While HMRC was clearly keen to clarify its approach and improve people’s understanding of the rules, the tests were ‘misguided and unhelpful’.
‘There are a number of elements of the new approach which we would see as positive,’ Hesketh said. But the business tests would add complexity without bringing improved clarity or certainty to the ‘medium’ risk taxpayers that the originally proposed business tests were designed to address.
The new guidance provided ‘more information about more realistic and relevant scenarios’ than earlier guidance, he added. ‘I would prefer that these [business] tests were completely scrapped and HMRC pressed on with the revised guidance and the improved scenarios.’
Philip Fisher, Head of Employment Tax and Rewards at PKF, said the government had ‘ducked the opportunity to address the serious issue of personal service companies, merely issuing some risk profiling measures that may be seen as threatening by many’.
HMRC said: ‘All relevant contractor bodies were consulted extensively in the writing of the guidance. Though HMRC wishes to provide certainty to as many contractors as possible without changes to the legislation, we do not feel we could go further, as this is complex anti-avoidance legislation. For those contractors who want complete certainty, we offer a confidential contract review service.’
