CIOT’s favoured approach to IR35
Whilst HMRC consider what to do with IR35, the Chartered Institute of Taxation (CIOT) has suggested their preferred approach to improving the administration of the intermediaries legislation.
The Institute believes a reporting mechanism, similar to the onshore employment intermediaries regime and the rules surrounding the public sector, would be the best way forward.
One of the ideas presented by HMRC in the July discussion document was to transfer the IR35 compliance obligation from the contractor to their end client. However the CIOT does not think this will simplify administration or reduce non-compliance. Instead, the Institute believes, the end users will simply err on the side of caution and deduct tax and NIC leaving it to the contractor and HMRC to sort out the mess.
HMRC has also suggested reducing IR35 to its much favoured Supervision, Direction or Control (SDC) test but the CIOT believes that this is unlikely to increase compliance. By taking such a broad brush approach, many who are genuinely in business for themselves and who would pass the current set of employment status tests would find themselves caught by IR35.
The CIOT believes a better option would be to impose an annual reporting obligation on organisations that engage contractors , based on the PSC notifying them whether or not it considers that IR35 applies. There should also be an obligation for the PSC to notify that organisation that it is committed to applying IR35.
Under the Institute’s proposed approach the organisation would then report what it had been told by the PSC and whether or not it was in agreement. If the organisation was to wilfully mislead HMRC that IR35 does not apply, when in fact it did, then any debt owed by the PSC in relation to non-compliance with IR35 would be transferred to the organisation concerned.
It is estimated by the Government that non-compliance with IR35 this financial year will cost the Exchequer around £430m in lost tax and NIC.
Colin Ben-Nathan, Chairman of the CIOT’s Employment Taxes Sub-Committee, said:
“It is clearly wrong that some people get away without paying the correct amount of tax and NIC because they are playing fast and loose with IR35 either through ignorance of the rules or deliberate non-compliance.
In our view HMRC needs to give greater publicity to their successes in IR35 cases to increase awareness of the rules and where they suspect outright evasion then clearly they should come down hard on those involved.”
What successes might they be then? I think the CIOT needs to have another look at HMRC’s record in IR35 revenue raising!
“It is clearly wrong that some people get away without paying the correct amount of tax and NIC because they are playing fast and loose with IR35
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F F S !! These people sound just like the Treasury !. The first part of the sentence is a clear assumption that we ‘cheat’, the latter part assumes IR35 is correct and just. There’s no hope.
Is IR35 not going away with the intoduction of the Dividen tax?
They failed to spot that the “flaw” in HMRC’s proposed solution is… exactly what HMRC want – a default position whereby ER NI etc are deducted as an employee and the contractor has to prove themself to be outside to get their money back (good luck with that).
NB At the bottom of the consultation paper was a link asking people to send complaints about the USRVEY itself to the people running it.
I think this should have been an IPSE thing – is it reasonable for HMRC to commission a survey based on the ASSUMPTION that there must be non-compliance simply because the # of small companies has gone up but the # of them inside IR35 has not?
Of course it isn’t valid – those things could both be true and correct. HMRC needed to SHOW that there was non-compliance, not assume it in this (deliberately) half-arsed way.
As usual, IPSE asleep at the wheel.
There should be clear guidelines not open to interpretation. The new dividend tax should do away with the IR35. The HMRC should be simplifying tax and NI. Tax and NI should be one. Any adjustment to contribution could then be done through allowances. The saving in the administration for all parties would be great. If employers had clear guidelines there would be less chance of misinterpretation, less mistakes, less avoidance and more peace of mind for all concerned
End clients take contractors, save money on Employers tax, other benefits like pension, holidays pay, health etc. On the other side they want to treat them as employee i.e not giving freedom like option of substitute, want them to work 9-5 etc. Which then put contracts in the situation that they have to pay employers tax, holiday pay or any other benefits. Which sounds like end client is in win win situation. So I am in agreement that if caught under IR35, additional tax should be transferred to end client, if this is imposed Client will clearly identify contractors as within IR35 or outside IR35.