Is the end in sight on IR35?

By Anne-Marie Roberts, Head of Taxation (Scottish taxes and indirect taxes)

6 October 2015

There have been a number of reviews of the intermediaries' legislation (IR35) over the last few years as HMRC looks at ways to improve the effectiveness of IR35 against a background of views that non-compliance with the legislation is widespread.

 The recent reviews have been:

There has been much discussion and examination of the issues in these reports so is there a change in the air – and will there be certainty for employers, engagers and individuals in defining their relationships for tax purposes?

The work done has not yet arrived at this point and HMRC issued a discussion document on 17 July 2015 to start a dialogue on making the legislation more effective in protecting the Exchequer and levelling the playing field between employees and those who supply their services through personal service companies. ICAS has now responded to this document.

The key point that emerges from all the reports, consultations and discussions is that this is a very complex and nuanced area.  Achieving certainty for all parties will involve significant choices by the Government about its competing aims of balancing the budget and providing a competitive business environment.

The current discussion document does not offer a solution to the problem, although it does include some good illustrations of the tax impact of structuring activities as personal service companies. Businesses who need certainty that they comply with the legislation and manage their risks will find small comfort in the proposals put forward.

In the response to HMRC, ICAS has reiterated that there will be little progress towards a level playing field without merging income tax with National Insurance contributions paid by employers and the self-employed.  The NIC paid by employers on salaries paid to employees has been the key factor in making personal services companies attractive to both contracting parties. If both sides have a financial advantage in categorising their relationship as one for services rather than of service it is inevitable that they will try to structure commercial relationships to give effect to this.

ICAS supports the recommendation of the OTS to suspend the IR35 legislation for a limited time to allow time to consider alternative options that give engager/employers and taxpayers certainty on the tax position of their contractual relationships and provide HMRC with rules that can be effectively enforced.

ICAS has put forward two suggestions for consideration:

  • A time-based categorisation of contracts – so that contracts extending beyond a particular duration (6 months is suggested) would be treated as contracts of employment.  This approach would require anti-avoidance provisions to prevent the use of a series of short term contracts
  • A certification system for contractors so that they provide businesses with a certificate from HMRC to demonstrate that they can be paid gross for their services.  This would be similar to the CIS scheme, and would require HMRC resources to administer the scheme.

There is still no certainty for individuals and employers and the problem of IR35 rumbles on.

ICAS response to IR35



  • Consultations and responses
  • Tax

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