The promise of IR35 simplification has been a perpetually unrealisable one since the troublesome legislation was introduced in April 2000. For the first time there was genuine hope the legislation would be overhauled last year when the IR35 Forum was established, including members from HMRC, the REC and the PCG, to tackle the issue.
HMRC and the IR35 Forum are due to publish their proposals on April 6th, and what we’ve garnered from the minutes of their last two meetings make their proposed “simplifications” sound more complex than ever.
The Forum will set out details of a business test freelancers and contractors can use to self-assess their IR35 status, and find out if they fall into low, medium or high risk categories.
The test will focus not on individual contracts as before, but on a freelancer or contractor’s entire limited company. After much haggling over the weighting and wording of questions took place at the Forum’s last meeting, the test will be posted on HMRC’s website on a trial basis shortly.
Alongside the test, HMRC will also publish six example scenarios. Two that fall outside IR35, two that fall inside, one the begins outside IR35 but later moves inside (much like the IR35 split decision we saw late last year), and most amusing of all, one that is a “grey area”.
That’s right – HMRC is now formalising an IR35 “grey area”. Wasn’t this supposed to be about simplification?
The six example scenarios are from a total of seventeen that HMRC has identified – they have refused to publish all seventeen for fear it would give too much away about their assessment process (and we wouldn’t want that, would we?).
IR35 Forum member Kate Cottrell told Contractor UK that to properly determine the probability of your business becoming the target of an IR35 investigation you should use the following formula:
“[Choose the most befitting] scenario, + HMRC guidance, then + your high, medium or low risk score total = your risk of IR35 investigation.”
Photo by Jon Candy