IR35 may be left to contractors' discretion

The senior Inland Revenue (IR) civil servant in charge of taxing freelances hopes to publish guidelines that enable contractors to judge whether or not they qualify for the controversial IR35 tax measures.

Assistant IR director Sarah Walker revealed in a recent interview that: "Individuals will judge for themselves. If they want certainty they can come to us for a ruling, and that will be binding. If they don't do that, we have ways of checking up later through our normal compliance procedures."

The IR recently published draft guidelines (www.inlandrevenue.gov.uk/ir35/draftgn.htm) giving three examples of contractors who will and will not be hit by IR35, based on a series of court judgements. Those who work on concurrent contracts, use their homes as offices and are paid fixed rates per job are more likely to avoid the tax measure.

However, Walker warned: "It's not something you can reduce to a series of tick-boxes. We decide by looking at the whole picture."

Civil servants met interested parties, including tax experts and contractor groups last week, to discuss the proposals. The final guidelines will appear early in January. Some groups have said that the three examples provided are insufficient, but Walker said too many examples could muddy the waters further.

However, she expressed interest in a suggestion from chartered tax adviser Anne Redston, of Ernst & Young, that "the agencies and the employers should help by using standard contracts agreed with the Revenue."

Standard contracts would leave agencies and employers to determine a contractor's IR35 status, rather than the contractor, Redston said.

Walker replied that the Revenue may give guidance on standard contracts, but she noted that the issue would be complicated when individuals have multiple contracts, which can boost their claim to a self-employed classification and allow them to avoid IR35.