Government Considering Possible Changes to IR35

HMRC has published a discussion document seeking suggestions on ways to improve the efficiency of the IR35 legislation.

IR35 requires individuals working through an intermediary, generally their own personal service company (PSC), to pay broadly the same tax and NICs as any other employees, where they would have been an employee if they were providing their services directly. The tax and NICs are paid by the PSC.

There are concerns about non-compliance with the rules, which is costing the Government £430m a year in unpaid tax and NICs.

The Government is considering options for reforming the legislation which will:

• protect the Exchequer; and,
• level the playing field between those employed directly and those who would be employed directly if they were not operating through their own company.

Options being considered include:

• increased involvement of the engager/client in ensuring that the right amount of employment taxes are paid; 
• simplifying the test for determining if IR35 applies, for example by aligning the test with that used for temporary workers in the agency rules, which is based on supervision, direction or control or by requiring an engagement to last a certain minimum amount of time in order to be considered one of employment.

Comments are required by the end of September. The discussion document can be viewed here.