By Lynne Gowers on 11th July 2014

What’s going on with IR35?

IR35 legislation has, once again, been a talking point for many in the freelance community again, recently.

Earlier this year, a group of peers, collectively know as Personal Service Companies Committee, compiled a report which contained a list of 16 tax recommendations, some of which were focused on IR35.

The idea of the document was to simplify the system and help develop the legislation so that the independent profiles that were affected by IR35 understood it better.

What's going on with IR35?

However, the government did respond but not how the PSC group would have liked, sparking an angry reaction from the peers.

The Government produced their response last week. “While I thank them for that response, I cannot say quite as much for its contents” were the scathing words of Baroness Noakes, one of the leaders of the organisation.

But what does this all mean for the actual legislation and can freelancers expect any changes to occur in the near future?

Fact and assumption

One of the big talking points about IR35 is the cost for the taxpayer. However, the government argues that the cost of abolishing the legislation would have a far greater strain on the British taxpayer, making it unlikely that this would happen at any time soon.

Taking into account the effects of doing so in relation to the Exchequer, directors and employers, it was estimated that the cost of getting rid of IR35 would be around £550 million.

However, their main argument against this figure is that the calculations are based on estimations and assumptions and not solid facts. This could give contractors some hope that the discussion will be re-opened at some point.

New HMRC guidance published

HMRC did make some changes to its IR35 guidance around the same time the peers were debating the system.

The tax office’s FAQ section on the matter was simplified into a new format consisting of six sections. However, the new information has done little to tackle the real issues surrounding I535, and many of the independent community still believe that more needs to be done to change it.

Could IR35 still be dismantled?

In an article discussing chancellor George Osborne’s proposed ‘earnings tax’ Contractor Weekly suggested that such a move could mark the end of IR35.

One reason for this is that if such a combination of income tax and national insurance contributions (NICs) did come into effect, savings on dividends from NICs would lessen, making IR35 legislation less of a necessity, according to the contractor news portal.

A bonding of the systems could inadvertently see IR35 being dismantled, even if this isn’t the primary goal of the Conservatives in combining income tax and NICs.

Of course, this would depend on a number of things, the first being that the Tories stay in power after the 2015 general election, and, secondly, that the logistics of introducing a combined earnings tax would be feasible.

For now, contractors who work through a limited company must stick to what they know and ensure that all contracts are scrutinised under the IR35 microscope in order to ensure they are compliant with the legislation.

It seems that, at the moment, the future of IR35 is causing as much confusion as the actual legislation itself.

Written by Lynne Gowers
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