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IR35 Forum: HMRC admits using “less refined” IR35 targeting criteria in the past

Contractors’ suspicions about the poor criteria used by HMRC to target those suspected of being inside IR35 have been confirmed. And, the taxman has promised, things will get better in future.

HMRC admitted to the latest IR35 Forum meeting that, when targeting contractors for investigation “in the early years of IR35 it had adopted a less refined selection criteria than used now”. Perhaps in acknowledgement of the poor results this produced, HMRC has said that in future it will use intervention, rather than compliance reviews, for low and medium risk cases.

Such intervention will include “help and support” through an IR35 Helpline and the possible creation of a Business Educational Support Team. There will also be an IR35 National Compliance Unit and an IR35 Compliance Team responsible for compliance reviews of high risk cases.

The IR35 Compliance Team will “follow (as they do now) the same approach to compliance activity as in other areas to ensure consistency of practice”. Consistent application by inspectors who are knowledgeable about IR35 can only benefit genuine contractors, who should have little to fear from an efficient investigation conducted by an IR35 expert.

This information is all confirmed in the minutes of the IR35 Forum meeting held on 29 June 2011. Unfortunately, despite HMRC’s regular use of terms like, “high, medium and low risk” when referring to contractors being inside IR35, it has declined to go into detail as to what criteria will be used. The minutes simply report: “HMRC explained that it was content to share details of its broad risk strategy but would not be able to share details of its specific risk profiling.” This leaves contractors and their advisers none-the-wiser as to how to ensure they are compliant.

The minutes also show that, when asked by Forum members about the time it takes for decisions on IR35 cases, HMRC responded that it “had an interest in getting cases settled without delay, but it could only do this if it could obtain the necessary facts”. This was followed with an explanation that delays often arise when waiting for clients to respond to queries. HMRC also noted that no-one had come forward with examples of cases that had taken excessive time, which had been an action point for all arising from the first meeting.

Another action point from the May meeting was HMRC’s investigation into ‘gateway tests’, which it advised is “a work in progress”.

The next IR35 Forum meeting will be held on 14 September 2011, when members have been invited to offer their views on HMRC’s current IR35 guidance.

Published: 01 August 2011

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