IR35 Review, IR35 Compliance, are you caught?

Following the launch of the Office of Tax Simplification (OTS) this week, the new body has been tasked with reviewing IR35 "as a priority".

In its initial report to the Chancellor - to be delivered by Budget 2011 - the OTS has been asked to:

• identify and provide evidence of the complexity and uncertainty created by IR35;
• consider alternative legislative approaches that would be simpler and create certainty while ensuring that, where intermediaries are used to disguise employment, any income that is effectively employment income is taxed fairly; and
• consider the scope for tax avoidance and the extent to which alternatives to IR35 would affect it.

The focus of the OTS study is to explore alternatives to the IR35 rules. Any issues raised as a result of this work may also apply to the structure of the tax system and 'employment status' in general.

So, when the Conservatives pledged to review IR35 as part of the general review of small business taxation, they were well aware that IR35 could not simply be "ditched" in isolation.

Freedom for contractors

Commentng on the inclusion of IR35 in the review, Colin Ben-Nathan, Chairman of the CIOT's Employment Taxes Sub-Committee, said:

"In a modern, flexible labour market, workers and engagers should be free to form the contractual relationships they choose, without having their arrangements second-guessed because the tax consequences of their choice differ from those of another possible arrangement.

"Rather than the tax system being used as an override to determine a worker's status as an employee, we think their status should be based on their legal position in employment law and that the tax and NICs liability should flow from this."

You can find out more about the OTS, and its IR35 mission here.

Please scroll down for related articles