Following the 2010 Office of Tax Simplification review, it was announced in Budget 2011 that the Government intended to take steps to improve the administration of the IR35 (personal service company) rules. As a result the IR35 Forum was set up to undertake this work.

In April 2012 HMRC began to pilot a new approach to IR35 administration which they developed with feedback from the IR35 Forum. As part of this pilot HMRC intended to strengthen specialist teams and centralised IR35 enquiries within these teams. This included changing their approach to enquiries with the aim of establishing the facts faster and closing enquiries that were low risk quickly. Alongside this HMRC introduced a risk based approach to compliance activity based upon whether cases were high, medium or low risk.

HMRC, in partnership with the IR35 Forum, has completed a review of the new administrative approach. The final report of the review was published in January.

The report considers how effective the new approach to IR35 administration has been, and also gives some further recommendations for change.

Some of the key recommendations made were as follows:-

• Review of the HMRC guidance available on IR35.

Recommendations include continuing development of the resources available on the Gov.uk site; abolition of the Business Entity Tests and allowing the Contract Review Service to give taxpayers a qualified opinion where full written contracts are not available.

• Consideration of how the IR35 rules could be better promoted and communicated as there is recognition that personal service companies affected are often not aware of IR35.

Suggestions here include articles in HMRC’s Agent Update, communication with taxpayers identified as potentially affected by the legislation and working with trade groups and accountancy bodies to hold seminars or disseminate materials.

• A review of the new approach to enquiries into IR35 issues.

Here the report concludes that there has been some progress, with “enquiries… more focused and consistent, at least in their initial stages”. Lengthier enquiries with more complex issues are highlighted as still being problematic.

The report also includes HMRC’s responses to the various recommendations. Whilst many of these are positive, it remains clear that improving the administration of IR35 remains very much a work in progress.