PAYE umbrella contractors, thankfully, have nothing to worry about in the ongoing deliberations about IR35 because they are safely beyond the scope of the controversial regulations.  However, following the release of the minutes of the IR35 Forum that met in May, it is becoming clearer that this issue might just be getting murkier, at least in one respect – “contractor segmentation”. In addition, it is unlikely to reassure freelancers working through limited companies that progress is being made.

The little-noticed “ contractor segmentation ” proposal, ostensibly made to improve HMRC administration of the regulations, may appear to simplify things from an HMRC perspective, but does it really address contractors’ concerns?

There will be disappointment for those contractors hoping that the new IR35 Forum will clear up the uncertainties related to IR35..  The proposed segmentation solution involves classifying contractors into three “ risk bands ” – low, medium and high.  Each section will receive specially targeted HMRC guidance.  Nevertheless, there is a glaring omission – contractors themselves are not to be informed about the criteria governing classification for each band.  Far from easing contractor uncertainty, this is surely likely to exacerbate it.

Some members of the Forum did point out that the new approach fails to distinguish between temporary workers and professional contractors, and does not assess the circumstances under which some temporary workers use agencies.  Thankfully, the minutes of the meeting record that HMRC has agreed to consider these issues further.  As to what happens next, we will have to wait for the next meeting, but it seems that improving the administration of IR35 is turning out to be rather more complicated than HMRC imagined.

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