'I applied to the Revenue for an opinion on the
IR35 status on my contract. They told
me I was inside IR35. I disagreed with
their reasons and told them so. Now
they say they have spoken with the client - but won't let me see the answers
they claim the client has given them because (1) they claim they are classified
(the client is a government body) and (2) they contain details of the
arrangements between the agency and the client. The agency on the other hand refuses to release their contract
with the client to me (even with numbers deleted) because they say the client
won't let them - again, national security.'
In an article some 6 months ago I reviewed the
quality of the opinions the Revenue were coming up with under their IR35
'opinions' service, and came to the conclusion that this service fell far below
what Contractors as taxpayers were entitled to expect under the Taxpayer's
Charter. The advice I gave at that time
was, if you are thinking about applying for an opinion, 'don't'. And the experiences many Contractors have
had over the past 6 months in no way cause me to change that view. I am aware of many contractors who had
applied for opinions before reading my earlier article, and are still battling
for agreement against spurious reasons cited by the Revenue, which have no real
basis in law.
The Revenue have recently made their internal
rulebook, the Employment Status Manual, available on the net - it can be found
at http://www.inlandrevenue.gov.uk/manuals/esmmanual/index.htm. The parts most useful to read are
-
the section from ESM1000 (which deals with
various aspects of the legal tests to apply when deciding whether an
arrangement is employment or self-employment, and which is reasonably - though
not wholly - comprehensive - although it does set out the tests in a somewhat
biased way, and omits reference to certain key cases); and
-
the section from ESM3000 on, which deals mainly
with other aspects of IR35 (include procedure when giving opinions.
It is in the section from ESM3000 onwards that
we now find the Revenue's declarations that they intend to treat agency
contracts having certain revenue-specified characteristics as falling within
IR35, regardless of the actual legal criteria or of the actual legal tests as
defined by Parliament. This is an
expansion of the matter originally contained in their guidelines published in
February.
And let's be quite clear about this -
Parliament in its wisdom laid down a clear statement of when income from a
contract was to be treated as within IR35 - and when it was not. Parliament then delegated the implementation
of those rules to the Revenue. The Revenue
then defined their own practises, and made up their own rough-and-ready tests
and yardsticks, which they apply when forming the opinions they give. And at each stage there is
oversimplification, a subtle elevation of the status of aspects of the true
legal tests which might help to favour the conclusion that Contractor contracts
are of the employment type, and a an equally subtle sweeping under the carpet
of the aspects tending to the opposite view.
The end result is that the Revenue staff using
and applying the manual believe that they are applying something which
(1) has the force of law - which it does not; and
(2) is an accurate statement of the law - which it is not.
Let's also be clear about this: The Revenue has no right to make up the
rules as they go along - or to change the rules. The making of laws which impose taxes and which then define the
circumstances in which such taxes apply is the exclusive right of parliament,
subject to the rights of the Courts to interpret those rules. The Revenue does not have the right to make
=- or to change - those rules. Not by
one jot or comma.
Everyone makes mistakes - but where you observe
that all the 'mistakes' someone makes are in their favour, then you begin to
realise that what you see is not a pattern of mistakes, but a deliberate plan
with a calculate end result.
The situation you have here verges on the
impossible; it is already clear that
(despite their declarations that they 'do not seek to impose any particular
status', and despite their obligation to provide a fair and impartial service),
the Revenue are not applying the proper legal tests when they give such
opinions. Thus it is important to know
not only exactly what their reasoning is, but also what facts they have taken
into account in forming their opinion, and what facts they have disregarded
(which you might actually consider to be material).
The opinion service is optional alternative to
making up your own mind on what basis tax laws apply to your situation - and
yet when you apply to the Revenue, they seek to take into account, in a way
which experience shows cannot be trusted to be fair or accurate, the content of
documents which they refuse to disclose to you. Here's the paradox: If
the contents of those documents are actually relevant, how could you possibly
be expected to make up your own mind accurately without seeing them? But if not relevant, why should they be
entitled to take them into account - the legal basis on which your status is
required to be assessed is exactly the same, whether you do or don't ask for a
Revenue opinion!
In your position, it may be that you have no
choice but to force the issue to the point where they make a determination
against which you can appeal - and then expect the hidden documents to emerge
at that point.
For my part, I have no doubt that your longer
term interests would be better served by taking your career elsewhere, and by
finding another contract where you can negotiate proper contract terms at the
outset which clearly reflects the outside-IR35 status of the skills you
provide. It is a seller's market in
many IT fields at present, and quite frankly you do not need the uncertainty or
the vulnerability of the position in which you are with this contract - and in
which you are likely to remain, even if you re-sign fresh contract terms for
the remainder of this assignment.
10th
November 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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