Contractors need to see “substantive progress” made on improvements to the administration of IR35, according to the Office of Tax Simplification (OTS) in its final report on HMRC administration.
The small business tax review report proposes a range of simplification measures to help small businesses interact with HMRC. And, referring to the IR35 Forum, it goes on to say: “...we understand that changes may be introduced from April 2012, which will be welcome.” It is not stated by OTS, but it is reasonable to expect any changes will be announced in the 2012 Budget on 21 March 2012.
On potential changes, OTS says that, “...the Government is working on a number of new initiatives, including focusing more on those who use personal service companies to disguise employment, rather than on those that may have just an isolated contract that may breach IR35.” It expects to see the publication of guidance “to indicate where there is a low risk of falling foul of IR35”.
The IR35 Forum is keeping its plans under wraps, but changes made to IR35’s future administration are believed to include categorising contractors according to a series of risk profiles, to help provide contractors with greater certainty about their IR35 status.
OTS’s report on HMRC administration is one of three final reports that call for simpler income tax, disincorporation relief and simplified reporting requirements for the UK’s smallest businesses. Many of these measures may well benefit contractors, as OTS Tax Director John Whiting explains: “We think that the recommendations…represent a common-sense approach that would help to ease the burdens of thousands of the smallest businesses throughout the UK.”
In its interim report into small business taxation published in March 2011, OTS recommended that the Government either suspend IR35, with a view to its eventual abolition, or “make explicit commitments to improve the administration”. In the 2011 Budget, Chancellor George Osborne chose to retain IR35 and created the IR35 Forum – a body with representatives from HMRC, the contracting sector and professional advisors – to produce recommendations to better administer IR35.