IR35 confirmation letters under fire from expert

Although it was briefly overshadowed by news of the election and analysis of the results, IR35 has once again made its way back into the news. This time, it is with the revelation that a leading expert has called into question the effectiveness of Confirmation of Arrangements when it comes to helping freelancers and contractors to demonstrate their status as being either inside or outside IR35.

Andy Vessey is a senior employment consultant with a leading firm of consultants and he is concerned that HM Revenue and Customs are no longer accepting CoA documents in support of an individual’s claims about their IR35 status.

Although HMRC disputes his assertion that they have stopped accepting the documents, Mr Vessey is insistent that they have been ignored by the department in around 75 per cent of the cases that he has defended on behalf of freelance contractors. The letters, known as Statements of Working Practices and Confirmation of Engagement letters, are intended to clarify the working arrangements between a contractor and their client in order to ascertain whether IR35 applies in any given case.

Although the letters don’t actually have an impact on the IR35 status of an individual, they were thought to be a helpful indicator which could avoid HMRC having to investigate an individual any further than necessary. Whilst not being taken at face value, they could often go some way to clarifying any elements of a contractor/client working relationship that needed expanding upon in order for the taxman to make a sound judgement.

However, Mr Vessey believes that such letters, usually provided in an attempt to offer HMRC a chance to focus their investigations on a particular aspect of their employment situation, are no longer being accepted by the department at all. He has made reference to a specific case in which the CoA was requested by HMRC, but by the time it could be supplied, a compliance officer told him that the department’s policy no longer allowed them to accept such letters.

For its part, HMRC denies this entirely, claiming that there have been no changes to the way the conduct IR35 investigations and insisting that they still accept CoA letters. However, another firm say that they have it in writing from HMRC that the CoA ‘doesn’t replace the necessary fact-finding’ that it expects from its investigators.

With this controversy raging, it might seem as though IR35 is getting more and more complex, but our guide to IR35 can help you to work out whether it applies to you and how you can be sure that you are compliant. If you are an IT contractor or independent professional in another sector, then keeping abreast of the updates can seem like an uphill struggle.