Expert says HMRC approach to IR35 enquiries has improved

Bauer & Cottrell, which provides employment status services to limited company owners – particularly contractors, says that its first experience of HMRC’s new IR35 administration efforts was a positive one, with a client being declared free of IR35 within three weeks of a technical submission being made.

As part of the Coalition’s pledge to improve the way IR35 is administered, the first stage of the process was unveiled earlier this year with the publication of new business entity tests which aim to help individuals work out if they are likely to be at risk from an IR35 investigation or not.

A number of dedicated IR35 specialist teams have also been formed, tasked with better identifying potential IR35 targets more accurately, and dealing with the enquiry process in a more efficient way than was the case in the past.

Bauer & Cottrell are one of the first firms to have tested the new HMRC procedures, and took on a case for a client who had received an IR35 compliance letter. The firm reviewed the contracts and working practices of the client, and pulled together evidence to demonstrate that the client was operating a ‘genuine’ business rather than being a ‘disguised employee’.

The firm also asked the client to undertake the controversial Business Entity Test, and submitted the documentation to HMRC on 17th July 2012. The client was told that he was ‘all clear’ (of IR35) just three weeks later.

Although this particular client was unlikely to have been caught by IR35, as he had multiple clients and performed some of his work from his own home office, it would appear to be an encouraging early sign that the IR35 administration by HMRC has been overhauled in recent months.

Kate Cottrell, who is also a member of the IR35 Forum which has been tasked with overseeing the improvements in HMRC’s approach to IR35 administration, said that  “this first experience of the new process is very refreshing and shows enormous potential to solve the serious past problems of IR35 investigations lasting for several years.  It also demonstrates transparency so that everyone knows at the outset that this is all about IR35 rather than past cases, which were targeted for IR35 but veiled within an HMRC Employer Compliance Review or other HMRC enquiry”.

For more information, try our guide to IR35 contract review services, which also provides links to several professional employment status service providers.