Within hours on HMRC publishing its IR35 guidance, members of the IR35 Forum issued a statement saying the document did not take key elements of their advice into consideration.

The IR35 Forum was set up specifically to advise the Revenue and the Treasury on the best way to administer IR35. Members of the panels included APSCo, the FSB, FCSA, PCG and the REC.

The joint statement said the Forum members were concerned that the measures HMRC has suggested do not go far enough to satisfy the new approach promised by the Chancellor in the 2011 Budget.

The Government promised to simplify IR35 and yet the business entity tests represent greater complexity, according to the members.

Chris Bryce, the chairman of the PCG, was also a member of the Forum. He said HMRC’s guidance notes show that it is not committed to improving the administration of IR35. External members of the Forum worked relentlessly to come up with innovative solutions, but the Revenue has gone for a risk averse approach that is unlikely to bring about improvements.

The Forum’s main gripe surrounds the scoring system on the business entity tests. External members said the way HMRC has distributed the points is unfair and does not reflect real-life business situations.

Members believe the scoring system will mean a large number of businesses wrongly fall into the high-risk category. This could turn out to be counter-productive because IR35 compliance officers will struggle to identify genuine high-risk case.

We are now entering what the Revenue calls the ‘test and learn phase’. During the next 12 months, the IR35 Forum will monitor the effect of the newly published measures.

The REC’s head of public policy, Gillian Econopouly, said that despite their disappointment, Forum members would continue to fight for a better solution to the IR35 problem.

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The long awaited IR35 guidance was published on Wednesday. The guidance will enable contractors to determine if their contract is disguised employment or if they really are in business in their own right.

HMRC has published a PDF file on its website that tells taxpayers of its new risk-based approach to deciding if people comply with IR35 legislation.

The Revenue explained that it helps people determine whether they are at a high risk of falling under IR35 and what steps you need to take. There are also 6 sample scenarios that demonstrate how IR35 could be applicable to a particular contract.

HMRC has confirmed that this document was drawn up in conjunction with the IR35 Forum.

The guidance also suggests that contractors retain evidence of their working arrangements in case they are subject to an IR35 review at a later date. According to HMRC, if you can prove you are outwith the scope of the legislation, and your circumstances do not change, the Revenue will not look into your working arrangements again for at least three years.

HMRC has also stressed that the Business Entity Tests and the 6 IR35 scenarios are not carved in stone. This is a pilot project and whilst the test and scenarios can help you assess your level of risk, it is impossible to draw up guidance that accounts for every eventuality.

Of course these tests are voluntary; there is no obligation to do them and even if you do and discover that you fall in the high-risk category, you don’t have to inform HMRC. What you may want to do is get advice from an umbrella company.

The Revenue has also set up a helpdesk to deal with enquiries from concerned contractors.

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Contractors working through limited companies might be tempted to switch to umbrella companies once the full extent of the Revenue’s IR35 assessment criteria becomes known next week.

We still don’t know exactly what the business entity test is going to entail as its launch has been deferred, supposedly until May 7th.

The weighting allocated to each question has been devised according to HMRC’s criteria. Contractors scoring between zero and 10 will be classified as high risk of falling under IR35 legislation. Those with a score of between 11 and 20 will be medium risk and anyone with a score of 21 or more will be low risk.

Contractors need to be aware that they can be awarded minus points for some answers. For example, if you say you were employed by a company through PAYE in the last financial year and are now working as a contractor for the same firm, you will be awarded minus 15 points. On the other hand, if you are lucky enough to have employees who contribute at least 25% to your turnover, you get a massive 35 points and shoot straight into the low risk bracket.

The Revenue seems determined to implement its own system of weightings even though business groups have advised them against it. It remains to be seen how many contractors will find themselves at medium or high risk of falling under IR35, but I’m sure there will be a lot of complaints when the test finally does go live.

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IT contractors should be aware that HMRC will track down anybody it believes could be guilty of tax evasion as a Scottish consultant found to his cost recently.

53-year-old Stephen Maxwell, who currently resides in Dumfries and Galloway, hid nearly £2 million from the Revenue; money he earned whilst he was working as an IT consultant for banks based in London.

Between 1999 and 2008, he consistently attempted to hide his income from HMRC. The banks paid his consultancy fees into companies registered in the Isle of Man and Gibraltar, but Maxwell was a hidden beneficiary of these companies.

According to HMRC Scotland’s assistant director of operations, David Odd, Maxwell operated a deliberate and systematic fraud through his IT consultancy business. HMRC takes a very serious view of people who defraud the Revenue.

Genuine taxpayers are the victims of income tax fraud and the Revenue will vigorously chase anyone it believes is acting dishonestly and bring that person to justice.

Kirkcudbright Sheriff Court remanded Maxwell in custody until the 26th April after HMRC investigators in Leeds looked into his business and income tax records.

Contractors operating through an umbrella company do not need to worry so much about their tax affairs as the umbrella does it for them. But IT contractors working though a limited company or operating as a sole trader need to be aware that HMRC has a zero tolerance policy for tax evasion and they would be well advised to make sure their tax affairs are in order before an inspector comes knocking at the door.

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Contractors with young families may be aware that HMRC has overhauled the tax credit scheme.

Before the start of the new tax year, people could claim Child Tax Credit providing their income did not exceed £41,300. However, as from the 6^th of April this year, the upper earnings limit is based on individual circumstances.

If your annual income exceeds about £26,000 and you only have one child, you are unlikely to qualify for Child Tax Credit. The same is true if you have two kids and an income in excess of about £32,200.

Claimants can also only get their payments back-dated for one month instead of the previous three.

HMRC has warned that claims for tax credit need to be renewed no later than the 31^st of July, or payments will cease. In 2011, one in five claimants missed the deadline.

The Revenue is asking claimants to make doubly sure they provide accurate information and warns it may contact claimants’ employers to verify information if it harbours any doubts. As well as changing the income limits for Child Tax Credit, the Revenue has also increased the working hours rules for couples who have at least one child and want to claim Working Tax Credit.

Steve Lamey, the director of benefits and credits at HMRC, said people should act as soon as their renewal pack arrives. The sooner they return it to the Revenue, the sooner they will receive the correct amount of money.

A new scheme called Universal Credit is set to be introduced next year and the government intends to switch all tax credit claimants to the system by 2017.

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Umbrella company contractors are no doubt waiting to find out what the government intends to do about IR35.

The wait will soon be over as HMRC has indicated that it intends to unveil six IR35 scenarios as well as a business test for contractors that operate through their own personal service company. These will help contractors self-assess whether they fall under the rules of IR35.

Members of the IR35 Forum are finalising two new processes for personal service companies and details will be published on the Revenue’s website this month.

The business test, which will be on trial to begin with, asks a series of questions which will be scored based on the answers given. Their total score will help them determine their level of IR35 risk. HMRC has decided to adopt this approach to move IR35 risk assessment away from focusing on individual contracts and instead considering the PSC as a business entity.

The IR35 scenarios are likely to be contractor’s first port of call when they look to self-assess their status. Similar to the case studies the Revenue must on its website back in 2000, these are for guidance only.

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The IR35 Forum actually agreed 14 scenarios with HMRC but the Revenue says it would confuse matters if all of them were published. The Revenue has confirmed that none of the scenarios will be sector specific – two will show cases where a contractor falls inside the rules; two outside; one split and one demonstrates a grey area.

It’s Budget Day tomorrow; the weeks of speculation will be over and UK taxpayers, including umbrella company contractors, will discover what is in store for them over the next 12 months.

We already know that corporation tax is going to come down in April, but what about income tax? Will the Chancellor give in and get rid of the 50p rate, and if he does, what will take its place? A lot of experts claim that the top 50p tax rate has not been as successful as was originally anticipated, but if he is going to remove it, you can be sure that George Osborne will find another way to tax high earners.

Entrepreneurs are hoping that the Chancellor will come up with measures to help them obtain the finance they need to grow their business. The announcement of new Enterprise Zones would be welcomed, as would a relaxation of the rules surrounding NIC holidays. Currently, location is a qualifying criterion for NIC holidays and a lot of entrepreneurs are calling for the scheme to be extended to all areas of the UK.

The government also needs to take more action to clampdown on tax avoidance and evasion. Currently, HMRC offers disclosure facilities to specific sectors, but experts are now saying that offering a general amnesty that runs alongside the sector specific ones would be a sensible course of action.

Last, but definitely not least, we have our old friend IR35. The OTS has been slaving away to come up with a way to ensure this burdensome legislation is administered fairly. What will Mr Osborne have to say about IR35? We’ll find that out tomorrow…

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Contractors may have been amongst the people who received a misleading letter about child tax credits from HMRC recently.

The Revenue sent out letters informing families that the income threshold for child tax credits would be £26,000 from the sixth of April. That is the correct amount for families with just one child, but the threshold increases for families with two or more children. A family with two kids will be entitled to the credits if they have an annual income of under about £32,200.

HMRC sent the letters to warn people that they must contact the department if they want to continue receiving child tax credits.

However, experts think families with more than one child may have been mislead into thinking they were no longer entitled to this allowance.

According to the Revenue, it sent the letters to families who it believes will no longer be eligible for the benefit after the start of the new financial year. But if a family has failed to inform HMRC that their financial circumstances have changed, the letter may deter them from claiming even though they are still entitled to the benefit.

HMRC has apologised for the confusion and advises tax credit claimants to check the Revenue website for up-to-date information on entitlement.

This is just another in the long catalogue of recent errors by the government department. Most recently, it was in hot water for sending out final demand letters to taxpayers who had already settled their income tax liabilities.

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Umbrella company contractors may start to see the results of the Office of Tax Simplification’s work on IR35 as early as April 6th.

The OTS has been working on ways to simplify the IR35 regulations that have been burdening down contractors in recent years. One of its major recommendations is to put an end to the in and out system whereby contractors are deemed outside the regulations on one contract, inside it on the next and then outside again.

The Office recommends the Revenue should look at the way a contractor normally works rather than interrogating every single contract. HMRC should be targeting those individuals who are disguised employees but operating out of their own personal service companies.

If the government accepts the recommendation, contractors who work from place to place and would normally fall outwith IR35 will not be troubled by the Revenue. HMRC will accept that they are self-employed even if the occasional contract does not fulfil all the criteria.

However, those who remain with the same company for a long time could be thought of as disguised employees. This could be a lifestyle choice and therefore the way of working will need to be looked at.

Of course, there is no guarantee that the government will accept this recommendation. The OTS recommended the retention of IR35 and that was acted upon, but this new recommendation veers in the opposite direction. We’ll probably have to wait until Budget day to find out!

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Umbrella company contractors may be interested to learn that the Revenue is getting near to finalising the new regime for IR35.

The IR35 Forum, comprising industry groups and HMRC officials, has been holding a number of meetings over recent months in a bid to improve the way the government administers IR35 regulations.

The REC has been participating in these meetings and it recently said that HMRC is now finalising improvements based on input received from the final meeting of Forum members. The changes need to be in place no later than April 6th

The final meeting of the Forum should have taken place in January, but the OTS decided that more work needed to be done and it was postponed for a month.

Gillian Econopouly, the head of policy at the REC, explained that the Confederation had been working alongside other interested parties to make recommendations on operational improvements to IR35 and devise ways to provide clarity for the self-employed as to whether or not they need to comply with the regulations.

She went on to say that the REC Technology sector group had been able to provide valuable practical input to the Forum, which raised awareness of the current confusion surrounding IR35 rules for both agencies and contractors.

The IR35 Forum will continue with its work, and the REC will carry on representing the views of the recruitment sector, as the April 6th deadline moves closer, she added.

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Recent Government figures show that an increasing number of people are complaining about the time it takes for HMRC to respond to queries.

Contractors were more than likely among the 76,000 plus people who lodged a complaint against the Revenue in the last tax year.

In the year 2008-09, 16,882 people complained specifically about the time it took to get through to the Revenue’s call centres. By 2010-11, that number had rocketed to 22,185. Last year a report from the Treasury Select Committee said HMRC’s response to phone calls could be described as patchy at best.

MPs said that despite HMRC setting a benchmark that 90% of callers should get through on their first attempt, the reality was that less than 50% of taxpayers actually achieved this. Furthermore, the report claimed that poor service standards have been a problem for several years and the Revenue’s attempt to improve customer service measures have not been effective.

Employees at the Revenue have been involved in industrial action over proposals to man call centres with private contractors. A year-long trial is currently underway and an HMRC spokesperson explained this was part of the plan to improve the level of service for people calling the contact centres.

The Revenue also apologised to taxpayers for delays in responding to their queries. It admitted it had not provided a good enough service in the past but said progress was being made and whilst there was still a long way to go, the department will carry on listening to its customers and focus on improving front line services.

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No sooner has the furore surrounding Mr Lester died down, it now transpires that the Department of Health has been paying 25 senior members of staff through limited companies. In fact more than £4 million has been paid out in this way.

While the Revenue has been busy tracking down IT contractors caught up in IR35 legislation, senior employees in the Government have slipped through the net, saving themselves vast amounts of National Insurance and income tax in the process.

It is not uncommon for senior executives in the private sector to get a three-year rolling contract and receive payment through a limited company. This trend now seems to have spread to the public sector as well.

The Department of Health is in denial, saying that the individuals concerned are genuine contractors despite the fact that some of them have worked for the Department for several years. Could it be that the Government was struggling to attract top talent and this ruse was the only way they could justify paying them more money? Remembering that the ‘employer’ does not need to pay the employers NI contributions of contractors, this could well be feasible.

But the fact remains that HMRC has been keen to force IR35 onto the contracting community and all the while, senior Government staff have been doing exactly what the Revenue is trying to stop! Are we going to see more departments emerge with egg on their face?

David Cameron says he wants more transparency in the Government. It seems there’s a long way to go before that becomes a reality!

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