By Jonathan London on 22nd July 2015

New IR35 consultation document launched

The government is inviting contractors and self-employed people to share their views on planned reforms of the controversial and oft-criticised IR35 regulations.

Last Friday (July 17th 2015), HM Revenue & Customs (HMRC) published a new IR35 consultation document outlining initial ideas for amending its existing intermediaries legislation, with the deadline to contribute set to run until September 30th.

IR35 was first introduced by HMRC in April 2000 as a means of ensuring so-called ‘disguised employment’ is taxed at a rate similar to traditional employment. Specifically, it aims to ensure people who would normally be treated as a full-time employee, but supply their services via a personal service company, cannot falsely make tax and National Insurance savings.

However, it has proven unpopular due to the amount of grey areas this creates for self-employed people and the subsequent regulatory burdens they therefore need to deal with. The government has also noted that non-compliance is widespread, with many cases occurring where two people are doing the same job but paying very different levels of tax depending on how they are engaged.

Having pledged in its recent Budget to open a dialogue with businesses on how to improve the effectiveness of the law, the government’s new document has laid out the substantial costs to HMRC of non-compliance with IR35 – around £430 million a year – while laying out some potential options for improvement.

These include further enhancing the administration of the rules or HMRC’s compliance response, though it was acknowledged that neither of these steps will be enough to address the problem on their own.

It believes allowing engagers to take on more of a role in ensuring that the right amount of employment taxes are paid may be more effective, while conceding the additional burden this would create. As such, HMRC is actively seeking opinions on this and other possible ideas.

The document said: “HMRC will engage with stakeholders over the next few months to explore options to make the legislation more effective in protecting the Exchequer and levelling the playing field between direct employees and those who work in a similar manner to direct employees, but through their own limited companies.”

Despite acknowledgement of the problems with IR35, the government document maintained that the abolition of the regulations – as previously called for by the Association of Independent Professionals and Self Employed (IPSE) – is still not an option.

Jonathan London Written by Jonathan London

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