The New IR35 Business Test: How Will Contractors Be Affected?

The IR35 Forum has revealed that a new business test as well as six risk scenarios will be published in April by HM Revenue & Customs. The improvements have been proposed to make the way IR35 is administered clearer; and from next month contractors and freelancers will be placed into either the low, medium, or high IR35 risk profile.

The advice will be issued to help self-employed workers regarding compliance risk. The aim of the Business Test will be to help contractors understand their position and they can use the evidence after taking the test if they are selected in an IR35 investigation.

The tests are not status tests because the legislation hasn’t been changed since it was introduced in 2000 but the proposals have attracted numerous disagreements due to the fact that industry experts claim that all freelancers cannot be categorised into a one-size fits all method.

The Forum was established by the Government to improve the administration of IR35 and to assist HMRC in identifying specific areas for development. Processes created include the new business entity tests and scenarios as well as a helpline and guidance.

Genuine contractors and consultants will not be affected by the latest changes, but aim to make IR35 easier to understand. And if they do become subject for investigation, their cases should be settled quickly with the help of the test results.

The scenarios which will be disclosed to “reduce the room for interpretation” of whether or not a contractor is in or outside the legislation. It is hoped that the scenarios will clarify the regulation and the IR35 Forum has revealed that it will develop a code of practice to educate contractors and contracting service firms.

The risk setups which will be published by HMRC in April will consist of two with a contractor inside IR35; two with a contractor outside it; a contractor who has started outside IR35 but moved inside; and the grey area of disagreement between HMRC and the Forum.

This article was written by the IR35 specialists at Nixon Williams. For more advice, visit the site today at www.nixonwilliams.com.

Bogus financial adviser jailed for tax fraud

A bogus financial adviser who fraudulently manipulated his “clients’” pension funds to avoid paying tax of over ?1.9 million has been jailed at Hull Crown Court for three years.

Colin Pearson (47) used the proceeds of the fraud to maintain a lavish lifestyle, driving expensive cars and owning luxury homes both in the UK and Cyprus including a villa on an exclusive golf resort.

Bob Gaiger. from HM Revenue & Customs, said:

“Whilst Pearson was living a life most people could only dream of, he left the individuals he conned out of pocket and without the pension funds they expected.

“HMRC will not tolerate this type of blatant fraud and will investigate and prosecute those found to be involved in stealing from the public purse. If you have any information about tax fraud please contact our 24 hour hotline on 0800 50 5000”.

Colin Pearson, who previously worked for the Food Standards Agency and held a McDonalds franchise, claimed to be a financial adviser and persuaded his “clients” to release over ?3.4 million from their pension funds. Pearson completed UK pension transfer forms on behalf of his clients to falsely claim that the funds were going abroad to avoid paying tax due on the pension withdrawals.

He provided fake documentation to register two overseas pension schemes. He then submitted the fake documents using false names, addresses, references and signatures to ensure the pension funds were released without suspicion or delay, to bank accounts that he controlled. On occasions he even made telephone calls to the UK pension companies posing as the policy holder; during one telephone call he attempted to disguise his voice with a Cypriot accent to give the impression that he was calling from overseas.

To add further legitimacy to the scam, he used articles from the internet to create a PowerPoint presentation to explain and sell the scheme to unsuspecting UK clients. He then took a cut of the funds before passing the balance onto the pensioners. In total Pearson persuaded over thirty UK pension holders to make unauthorised transfers of £3.4 million to avoid paying tax of £1.9m

On sentencing Pearson, His Honour Judge Richardson QC, said:

“You are branded a criminal, your life is utterly destroyed, and you are totally dishonest in your deceitful actions.”

He went on to say that the investigating officers did a thorough job which made the case easier to understand.

HM Revenue & Customs investigators arrested Colin Pearson in September 2009, he pleaded guilty to cheating the public purse at an earlier court hearing.

Morality demands rethink of UK-Swiss tax deal

Ministers should urgently rethink plans for a deal with Switzerland which would see UK tax evaders let off lightly while harming poor countries, says Christian Aid.

‘We fear that the agreement will be soft on the Britons who have illegally hidden billions in the Alpine tax haven but hard on developing countries, which also suffer from Swiss banking secrecy,’ said Christian Aid Director Loretta Minghella.

‘In a week when there has been a lot of talk in the UK – following the riots – of a moral deficit in society, it is extraordin­ary that the UK Government appears poised to let tax evaders off with nothing more than a regular tax bill.

‘People who have hidden money in secret Swiss bank accounts in order to evade their legal responsibi­lities to the UK will be able to escape unpunished and they won’t even have to reveal their identities to the UK taxman.’

The proposed agreement will lead to Britons with secret Swiss bank accounts starting to pay tax on them, which the Swiss will pass on to the UK – but crucially, without revealing those people’s identities.

Christian Aid believes the deal will seriously damage global efforts to curb tax dodging – a menace which it estimates costs poor countries $160 billion a year, far more than they receive in aid.

Germany is also reported to have initialed a similar deal with Switzerland.

Poor countries lack the political and economic clout to do such deals with Switzerland – but they too lose billions as a result of money being illegally hidden in tax havens.

And just like the UK, they need that money to fund vital public services such as schools, hospitals and justice systems.

Ms Minghella added: ‘I urge UK ministers to reconsider the Swiss tax deal as a matter of urgency.’

Christian Aid is calling on the UK and other G20 Governments to use their November summit meeting in Cannes to bring about an end to the tax haven secrecy exemplified by Switzerland.

Specifically, the G20 should broker a new system of automatic information exchange between Governments – including those of poor countries – to help them to detect when citizens hide wealth offshore.