TaxPersonal TaxRevenue officials dismiss IR35 loophole claims

Revenue officials dismiss IR35 loophole claims

IT contractors' hopes that a method for avoiding the new IR35 tax regime had been discovered have been dashed by the Inland Revenue.

Earlier this week, freelance body the Professional Contractors’ Group (PCG) placed a contract on its website that the Revenue had said was exempt from IR35. The contract had been submitted by an individual contractor after being drafted a law firm.

However, in a written answer to vnunet.com, the Inland Revenue said it had only approved that individual’s application and the contract could not be used as a model IR35-proof contract.

“The decision on employment status will depend on the circumstances of each case.

Anyone who wants confirmation of their own status can come to us for advice,” said the Revenue.

PCG spokeswoman Susie Hughes said the group is not claiming its model contract would work automatically. “There’s no such thing as an off-the-shelf IR35-proof contract,” she said. “Our view is that we at the PCG can offer a generic contract – a basic model to be taken away and tailored to circumstances.”

The Inland Revenue also dealt with a query from a contractor who contacted vnunet.com regarding case law on ‘substitution’. This is a clause in a contract that allows the supplier of the service to provide an equivalent stand-in to do the work, which case law suggests will exempt the worker from IR35, regardless of other factors.

“The Inland Revenue has stated that the contract is irrelevant – it is the actual nature of the client/contractor relationship that is important – so is this IR bully-boy tactic designed to scare contractors?” asked the freelancer.

The Revenue replied: “It is not true that we have said that a contract is irrelevant to the decision on whether an engagement is caught by IR35 or not. The contract should describe the relationship between the worker and the client.

It is only if the facts of the relationship are clearly different from what is set out in the contract that the courts would disregard the contract.”

However, the tax agency agreed that it is bound by court judgements. “Our article [on the Revenue website, describing IR35’s application] makes it clear that freedom to supply a substitute to do the job would mean that a contract is unlikely to be one of employment,” it wrote, adding that individuals can take Revenue decisions to court if they disagree with them.

Inland Revenue information on IR35: www.inlandrevenue.gov.uk/ir35

Professional Contractors’ Group: http://www.ir35update.co.uk

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