HMRC to issue fresh IR35 advice

HMRC to issue fresh IR35 advice

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HM Revenue and Customs (HMRC) has announced plans to bring in guidance about how the new IR35 rules will apply.

It follows speculation as to how contractor and small business tax will feature in Budget 2013 on March 20th.

Many small businesses are concerned about what the Budget will bring, with many hoping for tax breaks and others expecting clearer guidance on when legislation applies.

Ahead of the Budget, HMRC issued a refresh of its current IR35 advice.

Speaking to Contractor UK, a spokesperson for the official body said: “HMRC plans to publish further guidance shortly on the change to IR35, explaining exactly what it means and providing clarity about when it will apply.”

IR35 has been a contentious piece of tax legislation for some time, with the new clauses in the draft Finance Bill 2013 providing clarity that existing provisions apply to office holders as well as employees.

This change is expected to bring more directors who provide services through a small company under IR35.

Small businesses need to ensure that they have reviewed whether the changes will impact them, and what steps they need to take.

To determine if the IR35 applies, small businesses need to contact HMRC and answer a series of one-off questions, similar to a checklist. Those deemed to be outside of the new legislation will be provided with a certificate valid for three years.

However, those firms who do not contact HMRC to determine their own liability under the tax will find themselves in one of HMRC’s three risk bandings.  Low risk firms will be contacted for HMRC to check if IR35 applies.

Medium risk firms and high risk firms may need to undergo a review if they cannot prove to HMRC’s satisfaction that the legislation does not apply.

However, those that do try to reach out to HMRC could have a long wait. New tax call handling targets for HMRC have come under criticism from MPs for being “unambitious and woefully inadequate”.

The tax authority claims it will aim to answer 80 per cent of calls within five minutes, but this could mean that up to 16 million calls go unanswered for longer.

A review into its conduct in 2011/12 found that HMRC received 79 million calls about issues such as self-assessment forms, but 20 million were not answered. In the same period, a third of written queries were not answered for over 15 days.