In IR35

In the wake of rule changes abolishing tax relief on travel and subsistence (T&S) expenses for Umbrella Company Employees, independent professionals contracting through their own limited companies (personal services companies, or PSCs) are to face a new test to determine whether they fall within or outside IR35.

HMRC senior policy lead Julie de Brito told a seminar in London that the Government intends to introduce the new tests, including a new digital tool, for workers contracting through PSCs in the public sector in April next year.

De Brito announced: “We are going to be consulting on simpler tests and developing an online tool.

“The whole point is that the engager wants clarity at the point of hiring. It is no good having to wait three months.”

The digital tool will pose a series of questions aimed at determining whether a PSC worker is truly self-employed and therefore outside of IR35, in which case he or she may continue to be paid off-payroll. However, if responses to the questions indicate that the worker is caught by IR35, he or she will have to be placed on the public sector payroll.

De Brito maintains that the tool will define who needs to be placed on the payroll, adding that, provided the information supplied was accurate, HMRC would stand by the results.

However, a prominent expert on the UK’s contracting workforce, Dave Chaplin, raised doubts about whether a digital tool could possibly deliver clear-cut answers on a worker’s tax status.

Referring to an IR35 test developed by his own company, which 90,000 contracting professionals had taken, he said: “The best we can do is put people on a spectrum between one and ten points – so to get to a position where you give someone a pass or a fail, I think is Disneyland. We reckon that 40% fall into the grey area.”

De Brito responded by acknowledging that no test could encompass everyone, as cases at the margin will always exist. But if HMRC can develop what it wants to, a majority would be covered, which would be the best that can be hoped for.

She told seminar participants that the Government wished to receive stakeholder views to assist in the design and testing of the new tool and the new rules more generally. A consultation document will be launched in the summer, and draft legislation will follow in the autumn.

It should perhaps be noted that, unlike PSCs, PAYE Umbrella Companies offer peace of mind to both contracting workers and employers, as IR35 rules do not apply to them.

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