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IR35 Forum: partial breakthrough over risk rules but in-business tests may be looming

Contractors are likely to benefit from two significant breakthroughs made at the latest meeting of the IR35 Forum.

HMRC has agreed that it will no longer consider contracts in isolation. The Forum minutes state that, “in order to reduce burdens on business which HMRC accepts are not being used to disguise employment”, it will now amend its risks rules “to consider the overall nature of an intermediary”.

The minutes of the meeting held on 9 November also reveal that HMRC proposes to publish its general risk criteria to enable contractors to self-assess their status. However, it says “some risk parameters would always need to remain confidential, otherwise those seeking to disguise employment could manipulate their information in an attempt to present themselves as a bona fide business”.

The implications of the PCG proposal for a “tiered test approach, where the indicators of business dictate the level of HMRC intervention” are less clear. Details of the PCG proposal have not been given. The minutes merely state that they are an evolved version of what was presented to the Office of Tax Simplification. However ‘in-business tests’ imposed in other countries with large contracting workforces have not benefited contractors; in cases such as Australia, quite the opposite.

Several other positive outcomes arose from the meeting. During discussions, a non-HMRC Forum member highlighted how actual working practices determined their professional judgement on IR35 status, and HMRC said it would consider this aspect as something to explore further. HMRC also shared the most frequently asked questions of its IR35 helpline and the analysis of the 12 IR35 scenarios identified subsequent to the last Forum meeting in September was circulated.

Significantly, the minutes confirm that HMRC plans to introduce the new risk profiling and process from April 2012. This suggests that any new guidance and enforcement processes could be announced in the 2012 Budget. In order to achieve this deadline, the Forum will need to accelerate the pace of its activities, particularly as the next meeting is not due until 18 January 2012.

Published: 23 November 2011

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