Value of IR35 tests 'extremely limited'
There have been fewer people closer to the process of the development of the IR35 tests than IR35/employment status expert Kate Cottrell of Bauer and Cottrell.
Kate was one of the first advisers to the Office of Tax Simplification (OTS) and has been involved throughout the establishment and operation of the IR35 Forum. Kate is also a regular contributor to the forums on UKTECH and a member of our panel of experts.
Here she explains the position from the stance of someone who was there throughout. She identifies why she opposed the tests from the outset seeing them as an additional layer of complexity rather than a simplification and explains why she now sees their value as 'extremely limited'.
Kate writes:
The Business Entity Tests were invented by freelancer trade group, the PCG and presented to the OTS as part of the Small Business Review of IR35. They were rejected by those consulted, as part of this review and by the OTS and by the Government. The tests were slightly amended by the PCG and presented again to the IR35 Forum. I too did not support the tests whilst responsible for the OTS IR35 review report, seeing them not as any sort of tax simplification but as an additional layer of complexity for those affected by IR35. My view has not changed.
I seem to be being labelled as the only member of the IR35 Forum that holds this view and would like to correct this. There has so far been no public support for these tests from any of the accountancy professional bodies/experts represented on the IR35 Forum and HMRC has consulted numerous other stakeholders throughout this exercise not just those with their name on a list. Indeed I attended an IR35 Forum meeting yesterday and none of those parties listed on the PCG joint press release were present, but there were present accountancy professionals, industry specialist firms and others involved in defending contractors when under investigation.
The fact is that HMRC has set up three specialist teams and has already selected cases for investigation and these will start any day now. I have contributed many ideas and helped to improve the IR35 guidance, improve case handling and especially to improve the IR35 investigation process, which is what those unfortunate enough to be selected for review need now.
IR35 has never before had such focus following the calls by some for these business tests. With the recent use of personal service companies by some high profile cases and the IR35 consultation paper expected later this month, putting those contractors in senior positions straight onto the payroll, I maintain my view that it is naive to think that the process of improving the administration of IR35 was never an opportunity to change the legislation not least because the legislation has not changed!
Those that come out as low risk and have the evidence to prove it will benefit from the tests in the event that they are investigated for IR35 but ONLY when they are investigated. The value of these tests, whatever the scoring levels, is extremely limited.
If you could stand up tomorrow and shout that 95 per cent of contractors are low risk it would make no difference whatsoever to the need for them to consider their IR35 status for each and every contract they undertake.
These tests are a minor part of the administration of IR35 and as the IR35 legislation has not changed, failure to put in place an easy business test, cannot be seen in my opinion as a missed opportunity as there was no opportunity. It is time to concentrate on helping those that will be investigated throughout the next 12 months, whatever their risk level.
Article contributed to UKTECH by Kate Cottrell of Bauer and Cottrell. On a personal note, I have known Kate for many years and respect her professionally and personally. She has come in for a lot of criticism, maybe because of her involvement and possibly a case of 'shooting the messenger'. I am grateful that Kate has always been prepared to enter into dialogue with freelancers on this subject on UKTECH.
UKTECH will be continuing to provide news and expert comments on the new guidance - so keep checking the website for updates.