HMRC were roundly criticised in the recent House of Lords Select Committee report on the use of Personal Service Companies (PSCs). One area of focus was HMRC’s own Contract Review Service, a free facility contractors can use to check their IR35 status.
In the Government’s response to the House of Lords report, they pledged to review the CRS including ‘barriers to its use’.
Historically contractors have been wary of approaching HMRC for a verdict on their IR35 status due to the perception that it could result in an IR35 enquiry. Last week HMRC released their new guidance on IR35, but does it give contractors the reassurance that the CRS is a safe way of clarifying their status?
Qdos Accounting’s Seb Maley doesn’t think so: “The section on the CRS in the new guidance begins earnestly enough. However, it is clear that a contractor who receives an ‘inside IR35’ verdict from HMRC will still be left in with a bit of a predicament”.
The guidance includes a section on what happens if you disagree with HMRC’s opinion, stating that “papers will be passed to a local IR35 inspector” if a dispute cannot be resolved.
“This is a clarification rather than a change,” says Maley, “but it’s hardly going to fill contractors with confidence”.
The guidance goes on to read: “If there’s sufficient evidence to support an opinion and you disagree with that opinion, you can ask for an appealable decision against which you have a right of appeal”.
Maley believes this is the key point which will concern contractors: “To get what HMRC call an ‘appealable decision’ they would have to issue a tax and NIC assessment. This is effectively what happens at the end of an IR35 enquiry, where the amounts owed are set out. To appeal against this you would need to go to a Tax Tribunal”.
If a contractor does receive an ‘inside IR35’ opinion they would be free to ignore it and continue trading outside IR35. However, this would not come without significant risk: “If a contractor chooses to ignore HMRC’s verdict and they are selected for a full IR35 enquiry down the line, I would be very surprised if HMRC didn’t apply a hefty penalty for disregarding their previous advice”.
The Contract Review Service came under the microscope last year after it was revealed that only 10 written opinions were given from 80 requests in year ended 31st March 2013.
Qdos, who now provide a full accounting service for contractors, have also recently unveiled their IR35 Legal Opinion. This is a detailed verdict on a contractor’s IR35 status signed off by a solicitor and Qdos hope that it will finally provide contractors with certainty on their position.
“HMRC’s own Contract Review Service still seems to carry significant risk,” says Maley “an opinion from a qualified firm of solicitors will give contractors the confidence they need and have been lacking since IR35 was introduced”.
Qdos’ IR35 Legal Opinion is provided as part of their Assured IR35 service.
Industry leading IR35 insurance - from just £99 per year via Qdos. Covers up to £50k of professional representation. You can also cover potential tax liabilities.