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Reporting is the way forward

By Qdos Contractor

Qdos Contractor

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!

Published November 2015