July's IR35 Forum: a quick need-to-know

The minutes of a meeting at the IR35 Forum in July have now been published by HMRC, in late September.

The meeting was the first of its kind since April, when HMRC introduced the off-payroll rules. The meeting heard that:

• The IR35 digital tool, previously known as the ‘ESS’ but referred to at the meeting as the ‘CEST,’ has been used 450,000 times.

• The tool (‘Check Employment Status for Tax’) reaches a determination 85% of the time. Where it doesn’t, “further guidance and the IR35 helpline” are available, HMRC says.

• HMRC has “no evidence” that the April 2017 rules have had a “significant impact on attrition rates of contractors working in the public sector.”

• An attempt to increase awareness of the rules, especially at smaller public sector bodies, is to be made by the tax department.

Contractor-related issues

• There is “concern” at the reasons behind decisions of whether a worker is inside or outside IR35 not being passed further down the chain.

• HMRC is hopeful that these reasons would be made available to other parties further down the chain, but pointed out that the only person who is entitled to the reasons is the one who has the contract with the client (i.e. the contractor).

• If customer feedback indicates a need to change parts of CEST (formerly the ESS), HMRC will do so. 

• Significantly for any contractor who was tested by the tool before the April update to the tool, and who received a determination based on that tool (before it was changed), HMRC says the result is still “valid.”

• The Revenue believes “there is no need to re-run” the tool, even if the ‘inside’ or ‘outside’ outcome returned about the contractor’s IR35 status was issued by a tool that is not the current version of the tool.  

Future plans

• Explanation notes by HMRC will be released to outline any future changes to the tool.

• There are no plans for the tool to provide a unique reference number for each determination. Users of the tool should keep an electronic copy of the determination which would “amount to the same thing,” HMRC says.

• The official Employment Status Manual will be refreshed, to “consolidate existing guidance and improve readability for users.”

• Examples of ‘contracting out’ and ‘managed service’ are to be provided, on top of those already issued by HMRC.

Elsewhere at HMRC...

• The volume of calls to the Revenue’s IR35 helpline is “continuing to fall.” There were 1,740 calls in March; 1,380 in April; 1,208 in May; 1,135 in June and only 198 in the first week of July.

• HMRC is undertaking compliance activity with public bodies; focussing on the implementation of the reforms, checking compliance of the reforms and the correct treatment of workers under the off-payroll rules. 

• The perception of compliance cases taking a “long time” to close was discussed at the meeting.

• The focus by HMRC on the “highest risk” cases, often involving multiple engagements meant that cases could take “extended periods” to resolve.

• Cases where compliance was found to be “good” were closed “quickly”, so (together with the extended period probes) there is a “distorted picture,” in terms of case turnaround times.
• The Revenue confirmed that there are IR35 cases that are likely to be litigated in the near future.

Misc

• A review of the forum will be carried out, with members to first have a “one to one conversation” with one of the HMRC forum officials. Terms and membership will be covered in the “wide ranging” review.

• HMRC believes it has always been clear that the off-payroll rules “do not impact the genuinely self-employed or their right to claim legitimate expenses.” The Revenue made this two-fold claim in response to concern that those caught by the reforms were also (on top of the reforms), losing their ability to claim travel and subsistence expenses.

• The taxman is not aware of any significant movement in contractor pay or rates, but members gave conflicting anecdotal reports of this.

• In response to forum members asking HMRC if the public sector’s off-payroll rules would be extended to the private sector, the department replied that its “current focus” was on “embedding” the recent reform.

• In addition, HMRC volunteered: “We do of course want to see compliance improve in the private sector.”