Contractors and their clients, alongside other IR35 stakeholders, have been asked by HMRC for their ideas about how the legislation can be better enforced and meet the government’s tax targets, with submission due by the end of September 2015.
“During the last Parliament both the Office of Tax Simplification and the House of Lords Select Committee into Personal Service Companies published reports on IR35 which recognised there are no easy answers to reforming the legislation,” says HMRC in its IR35 Intermediaries Legislation discussion document. “Following both of these reports no consensus has been reached on the best approach to reforming the legislation.”
HMRC’s acknowledges the challenges associated with enforcing IR35, highlighting that better administration, compliance work, or a simple checklist is not the solution. However, it has proposed that a new test based on supervision, direction and control (SDC) could replace the existing tests, or contractor clients could become responsible for determining IR35 status.
“This document highlights that once again, the government is looking for a new kind of sticking plaster and is not trying to treat the root cause of the problem with IR35,” notes ContractorCalculator CEO Dave Chaplin.
“Better administration and compliance were tried and failed and because IR35 is based on employment case law and therefore subjective, it is not possible to produce a simplified test. HMRC is clean out of ideas about how to generate all the extra tax it has clearly promised to its political masters in government.”
Chaplin is also concerned that, whatever the outcome, the government won’t be satisfied with the resulting tax yield from IR35 because it never existed in the first place: “The government expected tax yield from IR35 to increase as the number of limited company contractors increased.
“But we know the assumptions HMRC makes to underpin its claims about how much tax should be raised are deeply flawed. Even the examples that HMRC includes in the discussion document to illustrate the difference in tax paid between employees and limited company contractors are incorrect and omit key information, so you cannot properly compare the two scenarios.”
Contractors who want to submit their views on IR35 have until 30 September 2015 and should email their contribution to the discussion to ir35.reform@hmrc.gsi.gov.uk.