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IR35 – The future?

IR35 has been with us since 2000 and despite a few attempts to change it into something more workable and realistic, it has not really changed in all that time. As an industry, we have been discussing alterations to the legislation on a number of occasions however to date they have all come to nothing.

However, in these austere times, the Treasury are keen to claw back as much cash as they can and it seems that contractors have become more and more of a target where it is felt (more often than not incorrectly) that they are avoiding tax that would otherwise be payable. There is a general feeling within Government that there is a need to “level the playing field” between those who are employed directly and those who would be employed directly were they not operating through a Personal Service Company (PSC).

The Consultation

Earlier this year, HMRC launched a Discussion Document which broadly stated that it wanted to better understand how the Intermediaries Legislation worked in practice and would be the first step in the long anticipated reform of IR35.

Specifically HMRC wanted to get a handle on what other vehicles could be affected by IR35, other than PSCs, evidence of how PSCs currently operate and asked for proposals to improve the effectiveness of IR35 to meet the objectives in the document.

They wanted views on whether engagers should take a bigger role in policing and operating IR35 and also what stakeholders thought would be the potential impact of and change to the test used to determine if IR35 applied.

Timescales

The Discussion Document was launched in July 2015 and stakeholders, both companies and individuals had the opportunity to contribute to the consultation until the end of September 2015. Responses to the Discussion Document would inform the formal consultation that would take place following publication of the feedback.

What’s the feedback?

As you can imagine, there have been impassioned responses from companies and individuals alike. Industry bodies have got involved to give their opinion and there have been surveys carried out by a number of organisations to get a feel of the potential affect that changes are likely to have to the UK’s economy as a whole.

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So what can be done?

HMRC believe that non-compliance with IR35 costs the Exchequer approximately £430million per year (though this figure is widely disputed by business groups) and it is important that any changed to the regime do not unfairly affect workers who are genuinely employed on their own account. They have stated that there is no possibility of IR35 being scrapped and replaced by something new but they also understand that it is not easy to create rules which tackle “false self-employment” without affect these genuine contractors. There are therefore a number of possibilities which we believe may emerge in the formal discussion:

  • Burden
  • Control
  • The Statement

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Further doubts about IR35?

If you would like to know more about how IR35 could affect your limited company now and how the Consultation could cause big changes, please get in touch with our expert team on 01928232155, via email or on our contact page.

 

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