A problem perplexing many contractors at the moment
is should they, or should they not, apply to the Revenue for an opinion on the
IR35 status of their contract? And what
if, having formed a view that their contract terms place the income from it
outside IR35, they then ask for such an opinion, and get back an answer which
is not what they expect?
It is a fundamental constitutional principle in the
UK that the rule of law is paramount.
One is entitled to go about one’s business and one’s life, in the confidence
that one’s freedoms can only be interfered with to such extent that the law
itself may permit. And nowhere in the
legal structures of the country is this more entrenched that in the field of
taxation – it is perfectly clear and long-established law that (1) no-one is
obliged to pay any taxes, save in circumstances expressly provided for by
law; and (2) it is perfectly legitimate
to arrange one’s affairs honestly in such a way as to reduce the burden of taxes
for which one may become liable. Death
and taxes have been said to be the two inevitabilities of life – but so far as
taxes are concerned, the inevitability goes no further than may be expressly
provided for by law; any payment beyond
that is purely optional.
Parliament creates the law. In general terms, budget proposals are
reflected in April in a Finance Bill, which will generally become the Finance
Act after it has concluded its passage through parliament and received royal
assent – and its provisions will then relate back to the start of the current
tax year on 6th April.
The criteria which decide whether or not income from
any particular contract will fall within the scope of IR35 are therefore,
purely and simply, a matter of law, as we expect it to end being
approved by parliament. And here’s the point: - it is not a
matter which relies on the discretion or whim of a Revenue official – it is a
matter to be determined by ascertaining the relevant facts, and then by objectively
applying the law to those facts.
The legal considerations which will decide whether
or not the income from any particular contract will fall within the scope of
IR35 have been well publicized, and the subject of extensive discussion. And there are many professionals – lawyers
and accountants – who have expertise in this field, and are capable of giving
proper and objective advice on them.
The Revenue too have published information and
guidelines on this question; see for
example http://www.inlandrevenue.gov.uk/ir35/guidance.htm,
and http://www.inlandrevenue.gov.uk/pdfs/ir56.pdf. And to be fair, most of this guidance
represents an accurate statement of the legal position – although there are
some situations where relying on it could result in a conclusion that income
fell within IR35, when established case law clearly says the opposite.
The Revenue have also taken upon themselves the task
of providing ‘detailed advice’ (Press Release 7th Feb 2000 – http://www.inlandrevenue.gov.uk/ir35/pr14_00.htm)
by providing an ‘opinion’ on whether or not income from any particular contract
will be caught by IR35. And they have
set up a service whereby such an ‘opinion’ may be requested by email (http://www.inlandrevenue.gov.uk/ir35/email.htm).
The Revenue are bound by the ‘Taxpayer’s Charter’ –
which states that one is entitled to expect the Revenue inter alia ‘to
be fair…by settling your tax affairs impartially…(and) by expecting you to pay
only what is due under the law…’ (see eg http://www.inlandrevenue.gov.uk/pdfs/cop10.pdf).
Many Contractors who have so far applied for Revenue
opinions under the above arrangements have been surprised by the replies they
have received. They have been surprised
·
to
be told that by the Revenue that in the Revenue’s opinion, the income from the
contract they have sent for an opinion will be caught by IR35.
·
to
see a list of ‘reasons’ purporting to justify that opinion, many of which are
either wholly inaccurate (eg by claiming the contract says one thing, where in
fact the contract expressly provides the complete opposite), or which are
‘reasons’ wholly unrelated to the legal considerations which in fact define
whether or not income from a contract is covered by IR35
·
to
note that the Revenue in their reply appear to have wholly ignored not only
factors which even the Revenue’s own published guidelines acknowledge to
be relevant, but also the entire content of the letter requesting the
opinion, and even the very terms of the contract itself!
·
to
discover that numerous other contractors have also received letters identical
in both form and content in reply to their own requests for opinion.
Word processors were once said to have innovated a
means of conveying information from the machine of the sender to the waste
paper bin of the recipient, without passing through the brain of either. Misleading and inaccurate ‘opinions’ from a
public authority which has undertaken to provide objective advice, delivered in
the form of a standard letter which bears no apparent relation to the facts,
and which clearly demonstrate that the material on which the opinion is
supposedly based has not even been read, are of no use to anyone. Contractors applying to the Revenue for an
IR35 opinion are entitled to a proper, fair, and objective opinion according to
the law, expecting them to ‘pay only what is due under the law’ – and at
present they are not getting it.
For the present, given that the Revenue have yet to
demonstrate that their ‘opinion’ service is either reliable, accurate, or
objective, the best advice I can give to Contractors is to form your own
opinion (in consultation where necessary with your own professional advisors)
as to the IR35 status of your contract income – it is unlikely to be worthwhile
to apply to the Revenue for a ruling, at least until such time as they begin to
deal with such applications properly.
And if you have already received an opinion which
appears to you to be wrong for the reasons set out above, remember that this is
not binding; make (and keep) a careful
note of your own reasons for disregarding it;
if you choose to reply, do so politely, and request that they actually
consider and deal with all the points you made in your original letter and all
the relevant terms of the contract, rather than simply send a standard form
letter.
It may be the case that the Revenue generally live
up to the standards declared by the Taxpayer’s Charter. But one might be forgiven for thinking in
the light of present experiences that they are letting themselves down, and
allowing themselves to be driven by political considerations, rather than
simply applying the law.
12th May 2000
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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