Revenue amends status manuals after PCG proposals on IR35 tests

The Professional Contractors Group recognised the positive move on the part of the Inland Revenue who has amended the official guidance on status assessment to take account of changes recommended by the PCG.

PCG Chairman, Jane Akshar gave a cautious welcome to the changes to the Inland Revenue's Employment Status Manuals. She said: "These changes have been a long time coming and they certainly haven't addressed all of our serious concerns, but they are a move in the right direction and we are pleased that our negotiations are yielding positive results.

"While we have differing views on the rights and wrongs of the legislation, it is a fact of life for thousands of contractors and these changes will go some way to help bring some clarification to what has been a very unclear situation. We will continue to work with the Revenue on behalf of our members."

The manuals are the guidebooks for the Inland Revenue's own staff as to the criteria which are taken into account when determining whether a contractor is caught by IR35. The PCG had proposed a series of changes to the Inland Revenue's status manuals, which the contractors' Group considered would result in more balanced guidance.

In response to these suggestions, the Revenue has clarified some of the details in the manuals, including the issue of duration of contract, provisions of equipment and the relevance of indicators of 'Being in Business on Your Own Account'.

The PCG represents more than 14,000 members who are small businesses in the knowledge-based sector, mainly in IT and engineering. During the discussions with the Inland Revenue, the PCG was advised on the technical detail by Anne Redston, tax partner at Ernst & Young.

The key changes to the manual cover:

• Provision of equipment by the client does not of itself mean that the contractor is caught by IR35;
  
• The 'fail IR35 letter' has been substantially amended to make the explanation to the contractor more personal to his or her circumstances;
  
• 'In Business on Own Account' tests, covering contractors' working practices, has been reinforced;
  
• Length of contracts is in itself a neutral factor in determining whether a contractor is caught by IR35;
  
• The Revenue has recognised that a contractor can work for a single client for good business reasons and this does not of itself mean that he or she is within IR35.

These changes will come into effect immediately. PCG's expert Kevin Miller, who also took part in the meetings with the Revenue, has produced an analysis of the changes for members of the Group.

IR35 was announced in a press notice after the March 1999 Budget. It treats small businesses in the knowledge-based sector as 'disguised employees' for tax and NI purposes, thereby preventing them from operating on similar terms to their larger competitors.

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The Editor