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HMRC IR35 guidelines draw criticism

THE SERIES OF TESTS and scenarios released by HM Revenue & Customs “fails to take into account key elements of advice” provided by small business representatives invited by the Treasury forum to discuss the issue.

HMRC “had missed an opportunity to bring clarity, transparency and fairness in dealing with IR35”, stated the group, which included the PCG, Recruitment and Employment Confederation (REC), Freelancer & Contractor Services Association (FCSA), Federation of Small Businesses (FSB) and Association of Professional Staffing Companies (ASPCo).

They expressed “concern that the measures suggested in the HMRC report will not go far enough and will not reflect the new approach promised by the government at the 2011 Budget”.

PKF’s head of employment tax and rewards, Philip Fisher, was also scathing of the guidance and felt the tests and scoring system provided were unsound.

“The weightings given to each test at the moment are flawed”, he said.

“For example, meeting the 25% ‘assistance [income from employees] test’ alone will mean that HMRC regards your company as low risk. However, if you only generate 24% of income from such employees you might automatically be at high risk.

He added that far greater efforts were needed to address abuse of the IR35 system; suggesting publishing such guidelines was not enough.

“Regardless of the scoring, unless HMRC puts considerable resources behind the three new teams that are due to be created to focus on IR35 issues or introduces sophisticated information gathering systems, publishing its risk analysis techniques serves no purpose.”

The IR35 guidelines comprise 12 tests designed to help gauge the status of workers, with illustrative scenarios provided.

More detail on the tests can be found here.

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