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The controversial two-part question six (Q6) on form P35 is to be merged into a single query, the Revenue has said.
It will be embedded into the PAYE regulations for 2013/14 as ‘Are you a service company who [sic] has operated the intermediaries legislation (sometimes known as IR35) or the managed service companies legislation?’, and an answer will be a legal requirement.
The announcment of the change is documented in the minutes from the 23 June meeting of the IR35 forum.
Barrister Keith Gordon of Atlas Chambers has been highly critical of Q6. He said, ‘It is reassuring to see HMRC recognise, albeit belatedly, the importance of ensuring their demands for information have statutory backing, especially if they are threatening to impose penalties for non-compliance.
‘It remains to be see whether or not HMRC will adopt the same approach for next year’s valedictory P35: will they legitimise the service company question by updating the PAYE regulations currently applicable, will they withdraw the question on the basis that it is ultra vires, or will they repeat this year’s fudge?
‘Taking the last option would be inexcusable given there is still ample time to rectify the situation,’ added Mr Gordon.
‘If HMRC are serious about respecting taxpayers’ rights, then we should expect to see some proper moves in relation to the 2012/13 P35.
‘So far as the question for 2013/14 is concerned, the currently proposed wording looks as if it will need revising because it is hard to imagine any new regulations defining “service company” in line with current HMRC guidance.
‘It might be simpler (and would certainly be less confusing) if the question asked merely whether the IR35 or the MSC legislation had been operated by the employer during the year,’ said Mr Gordon.
