Following the disastrous launch of the IR35 Business Entity Tests last week the tension amongst members of the IR35 Forum, the group established to steer ongoing IR35 reforms, has been palpable. This was brought to a head on Friday when the PCG issued a statement condemning fellow Forum participant Kate Cottrell of Bauer & Cottrell, claiming her commentary on events was “ill-informed and ultimately misleading”. We reached out to Ms Cottrell, who has now issued a counter-statement defending her position.

OTS Review

PCG statement:

“Far from being rejected by the OTS, as Ms Cottrell suggests, the ‘business tests’ were one of three options, including abolition, which it put forward to the Government.”

Ms Cottrell: 

“The OTS put forward to Government two lead options, suspend IR35 pending any acceptance of the merger of income tax and NIC, keep IR35 and improve its administration and only if these two options were not accepted to consider the third option, the business tests. They stated “If this policy is considered, the evaluation of fiscal risk will depend on the difficulty of the test and could result in the removal of too many individuals from IR35 as the experience from Australia shows. The OTS recommends rigorous analysis and consultation on the criteria to be used in a possible test prior to implementation.”

“The OTS report also noted that it “received views from some of our Consultative Committee in support of this option and some very strong views against, on the basis that it adds another layer of complexity.”  The government chose to keep IR35.”

Operational Approach Meeting

PCG statement:

“Ms Cottrell claims that “none of these parties [including the PCG] were present” at an “IR35 Forum meeting yesterday [10th May]”. No such meeting took place. An “operational approach meeting” for specially invited representatives of the accountancy profession did take place on this date.”

Ms Cottrell:

“I confirm that I attended this meeting alongside three from the accountancy professional institutes but the majority of attendees were from other organizations well known for representing and defending freelancers, including Qdos Consulting, CCH Wolters Kluwer, Abbey Tax and I understand that Crawford Temple from Professional Passport was invited but unable to attend. Formal minutes are expected to be published.”

Note: We’ve independently confirmed that several of the groups Ms Cottrell names were indeed in attendance at the meeting in question

Attendance

PCG statement:

“We have been present at every meeting of the IR35 Forum, unlike Ms Cottrell.”

Ms Cottrell:

“Yes, I missed the second IR35 Forum sub-meeting, organized and hosted by the PCG. My reason for not attending this meeting is because of the conduct of the first meeting where I felt that I was being attacked for holding a different view and I was not at all comfortable with the frequent use of bad language.

“I also missed one formal IR35 Forum meeting owing to a medical emergency. I understand that this meeting entailed going over the business tests and the scenarios once again and I had already provided a comprehensive paper on these subjects to HMRC so this was not a critical meeting for me.”

Support for HMRC

PCG statement:

“Ms Cottrell has repeatedly been alone in voicing her support for HMRC’s position.”

Ms Cottrell:

There are 5 organisations that are not happy with the tests as they stand and the PCG states this is the majority of the IR35 Forum. However, there are 5 other members of the Forum including me and most are yet to give a public view.

“The point I have been making in my articles is that, quite correctly, HMRC has been consulting on this issue far and wide. This is not just about what these 5 or indeed 10 have to say and HMRC has involved everyone who has either expressed an interest or directly approached those it considers important in the industry for their views. I am entitled to my opinion and am certainly not alone in the views that I hold.

Guidance

PCG statement:

“Ms Cottrell […] is directly at odds with HMRC’s own guidance.”

Ms Cottrell:

“I said “If you could stand up tomorrow and shout that 95 per cent of contractors are low risk it would make no difference whatsoever to the need for them to consider their IR35 status for each and every contract they undertake.” The PCG says

“This is directly at odds with HMRC’s own guidance. If a contractor is “low risk”, HMRC commit to not undertaking an investigation for three years, provided that individual’s way of working does not substantively change. Of course, PCG believes HMRC’s current scoring fails to identify a sufficiently large proportion of “low risk” businesses- but it is simply incorrect to suggest that being classified as low risk makes “no difference whatsoever.”

Well clearly I did not say being low risk makes no difference! What I did say is that it makes no difference for the need for them to consider their IR35 status for each and every contract they undertake. If an individual can prove they are low risk they will be left alone for 3 years, but HMRC’s guidance also states “If you are in the ‘low risk’ band, you may happen to enter into an engagement which is within IR35. If so, your intermediary must apply the IR35 rules to the income from that engagement. See under ‘High or medium risk’ on page 7.””

Motivation

PCG statement:

“If Ms. Cottrell does not believe this is an opportunity to improve IR35 then it brings into question her true motivations for taking a seat on the IR35 Forum.”

Ms Cottrell:

“I maintain that the creation of the IR35 Forum and the remit to improve the administration of IR35 has never been an opportunity to change the legislation as the legislation has NOT changed.   In my opinion, having easy business tests, which would put the majority of individuals at low risk would be naive in these circumstances especially when there is currently the biggest focus on those affected by IR35 for 12 years.

My motivation has been to improve the whole of the administration of IR35, to make sure that investigations do not go on for years, to improve the guidance and reduce the fears for those new to contracting or those sadly forced to operate limited companies. I have chosen to provide numerous papers and evidence to ensure that IR35 will be improved, despite the constraints of unchanged legislation, rather than concentrate entirely on the single minor issue of business entity tests.”

Senior Ministers

Ms Cottrell says in her response that during an IR35 Forum sub-meeting the PCG claimed senior Ministers supported their Business Entity Tests, but when questioned would not elaborate. We’ve reach out to the PCG for clarification and will update when we hear back.

UPDATE: The PCG has responded that they have nothing further to add at this time.

Summary

Ms Cottrell:

“In summary, I am accused by PCG of writing “factual inaccuracies”. This is not true. I am also accused of not constructively engaging with them and to this, I would say, that it is plainly obvious to most, that such engagement is not possible if you dare to hold a different view. As to their, at best, defamatory comments I would simply ask, is this PCG press release indicative of an organization whose primary goal is to help and support its members, many of whom are also my clients?”