IR35 Reform

HMRC has published a discussion document seeking views on fundamental reforms to IR35, saying it wants to make the existing intermediaries legislation more effective in protecting the Exchequer and levelling the playing field between direct employees and those who work in a similar manner to direct employees but through their own limited companies report Harris & Co chartered accountants, the specialist small business accountants.

Options under consideration include requiring engagers to take on more of a role in ensuring that the right amount of employment taxes are paid, although HMRC acknowledges this would add considerably to the administrative burden for these companies.

Under such an arrangement, those who engage a worker through a PSC would need to consider whether or not IR35 applies (in the same way as they would need to consider whether a worker should be self-employed or actually be an employee), and, if so, deduct the correct amounts of income tax and NICs as they would for direct employees.

HMRC also wants views on whether the test for determining if IR35 applies should be simplified. One option could be to align the test with that used for temporary workers in the agency rules, which is based on supervision, direction or control. Another option could be to look again at some of the suggestions considered by the Office of Tax Simplification, such as requiring an engagement to last a certain minimum amount of time to be considered one of employment.