HMRC Clampdown on IR35 Avoidance?

ir35

What started life as a press release in 2000 has since become a notorious and difficult area of law; IR35. The press release followed a statement by the Chancellor in the 1999 budget and the consequent IR35 legislation was introduced in April 2000. The aim behind the legislation? To crack down on a particular form of perceived tax avoidance whereby individuals would seek to avoid paying employee income tax and National insurance contributions by supplying their services through an intermediary (usually a personal service company) and typically paying themselves in dividends.

HMRC has recently sought suggestions on ways to improve the efficiency of the IR35 legislation in reducing the tax and NIC advantage for individuals engaged through a personal services company instead of as direct hire employees. Options include:

  • Administrative changes to increase compliance (although HMRC does not consider that it has sufficient resources to cope with the compliance burden).
  • Increased involvement by engagers in ensuring the correct amount of tax is paid and/or a limitation in the scope of what falls within IR35 to engagements above a certain duration, with a possible adoption of the deemed employment criteria set out in the intermediaries legislation.

Comments and alternative suggestions must be submitted by the end of September 2015. No doubt, a watchful eye will then be kept on whether or not varied and more stringent IR35 legislative change is implemented.

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