Revenue's IR35 chief: no plans to change the legislation
This week on UKTECH we will run a series of news stories based on an exclusive interview with John Hinton, the IR35 Revenue chief. The interview represents the first official response by the Revenue to contractors' IR35 concerns in 2002. Richard Powell, UKTECH reporter, met with Mr Hinton last week at Somerset House to thrash out the issues... The first extract explores what's next for IR35, what effect IR35 has had on the industry and what the definition of a genuine business is according to the Inland Revenue.
UKTECH- What plans does the Revenue have to change IR35, taking into account the comments of four judges who outlined the difficulties and uncertainty surrounding the legislation as it currently stands?
Mr. Hinton- "We've done a lot already with the judicial review and the guidance that's been changed. The status manual has been changed and our website is continuously under review. The short answer is that we've got no plans to change the detail of IR35. So broadly what you've got now is what you can expect to remain.
"The emphasis here is on the Government because we in the Revenue don't change things."
"If you're a true entrepreneur then IR35 is not going to be causing you any problems... IR35 is the duck test - if it walks and quacks like a duck, it's probably a duck" - John Hinton on the targeting of IR35
UKTECH- Do you see IR35 as having any negative effects on the UK contracting industry?
Mr. Hinton- "We haven't seen any evidence, not even during the judicial review. We've seen the PCG's Gone Abroad survey, which suggests that some people have gone abroad, but on the other hand it wasn't a terribly robust survey.
"I doubt if the survey would pass many of the stringent tests that an official survey body would put forward. It doesn't really prove anything in particular. We're always going to be looking at a globalised workforce and people aren't going to stay and work in one place anymore."
UKTECH- Yes, but if these contractors go abroad and take their businesses with them for good and pay taxes to another country then haven’t you defeated yourselves?
Mr. Hinton- "I think a lot of people moved abroad before IR35. It wasn't really proof of anything in particular. We've got a mobile workforce and a lot of other countries have something akin to IR35. People move in and out of countries for all sorts of different reasons and the UK is still one of the most attractive places there is to work in from a tax point of view."
UKTECH- But not for people who work through service companies?
Mr Hinton- "Not at all. The UK is generous in that respect too - a lot of other sophisticated countries have IR35-type legislation that operates in a different way."
UKTECH- But they also have tax incentives that help to lessen the business's tax burden.
Mr Hinton- "Not all of those countries do. Different countries have different tax systems and you have to relate that to the overall picture. I suspect we've got as many people, if not more people coming into the UK than are leaving - that is nothing to do with IR35 - it's to do with working patterns.
"We've seen the comments about the economic downturn over the past 12 months, which suggests that it is more difficult for IT contractors to get new business. But that's more a question of economic peaks and troughs and not linked, that we can see, to IR35.
"You have to remember that IR35 has no effect on a genuine business, it only affects those businesses that portray a number of the features of direct employment, except for using an intermediary."
UKTECH- What is the Inland Revenue's definition of a genuine business?
Mr. Hinton- "The answer to that is essentially set out in case law. We've tried to describe how we use case law, operating through status manuals and through an article in Tax Bulletin (issue 51).
"The employment status process is something that is constantly evolving as it revolves around case law. What is determined as a genuine business is determined therefore by what Judges or Commissioners have found.
"If you're a true entrepreneur then IR35 is not going to be causing you any problems in the same way that if you're a genuine business, you won't be affected. It's the duck test - if it walks and quacks like a duck - it's probably a duck."
Tomorrow - UKTECH talks to John Hinton about Case Law and the PCG's strategy.