HMRC publish IR35 Forum minutes

A “customer segmentation model” is indeed the best way to improve IR35’s administration as it would let contractors self-assess their risk of exposure to the rule as low, medium or high, HM Revenue & Customs has said.

Speaking at the IR35 Forum, HMRC pointed the six industry representatives in attendance to a briefing paper on its proposal that taxpayers affected by IR35 should be able to class themselves into one of the three groups.

Using guidance that HMRC will issue for each segment, taxpayers will be able to “decide” whether they are seen by the taxman as having a low, medium or high risk of liability under the legislation.

Letting taxpayers decide on IR35 and issuing targeted guidance to inform their decision are two parts of what HMRC says is its “broad strategy” for improving administration of the rule, the forum heard.

According to minutes of the meeting, published by HMRC, the third component of its IR35 reform strategy is for HMRC to conduct ‘high risk’ reviews quickly and with “as least disruption as possible.”

At the opposite end of the model, customers “clearly outside the ambit of IR35” should receive assurance through clear guidance, presumably from HMRC; that “they did not to worry about IR35”.

But as chairman, HMRC was told that its model-led approach, as outlined in the pre-meeting paper and then explained to the attendees, fails to “adequately recognise” there are both “professional contractors and temporary workers” in the labour market.

It also fails to “sufficiently recognise the distinct customer group of employers” likely to be involved in an IR35 case but, countered HMRC, its development will consider that end-users are influential in how workers are engaged.

Still, these early criticisms of the customer segmentation model for IR35 suggest that one former tax inspector is not alone in thinking that considerable input from the contracting industry is required for it to be robust and workable.

It may be partly as a result that “HMRC agreed to consider how its proposed model might be expanded to reflect wider considerations”, possibly to include the use of “contractual relationships” to identify taxpayer-risk to IR35 as low, medium or high.

The forum then discussed hypothetical contracts; ‘gateway tests’ and how helpful it would be if, with their industry understanding, the Revenue could develop a tool for IR35 similar to the Employment Status Indicator.

Mistrust, inefficiency and inconsistency on the part of the taxman were also dealt with – owing to, respectively, the disproportionate targeting of sectors or regions; cases “going around in circles” (no single HMRC officer has sole ownership of a case) and a belief HMRC has, so far, “stuck pins” in a list to decide who to target under IR35.

Turning to these criticisms of it current approach to IR35, HMRC responded with a set of ‘action points:’ forum members will, for example, provide HMRC with evidence of ‘old’ IR35 reviews (still ongoing after 18 months), and details to prove the alleged over-targeting. 

Another action points says the Revenue will explore providing an audit trail for phone calls to its IR35 helpline so, if subsequently required, taxpayers can prove that they sought HMRC’s views before they entered into contracts.

There was no commitment from HMRC for it to accept an IR35 Code of Practice, however, yet minutes of the meeting say there was “some support” for a set of taxpayer protections to be created specifically for people pursued under the legislation.