Should Ir35 Be Scrapped}

Should IR35 be scrapped

by

Owen Donnelly

The IR35 legislation is going to be announced at Autumn Statement 2015. This legislation is designed to specifically combat tax avoidance. It is targeted at individuals who are using their own limited companies or partnerships to provide services and because of that they are not paying taxes they should be.

Because of this new legislation, some tax experts are recommending that all PSC (personal service company) contractors should hire at least one employee to be able to use their own PSC to continue contracting. The problem is that if a contractor hires someone just to avoid IR35, HMRC could easily see what the real arrangement is avoiding paying taxes.

First of all, intermediaries that are limited companies are in the eyes of the HMRC service companies and according to HMRC PSC can have more than one employee and still remain PSC. However, if the contractor doesnt take full responsibility for providing all rights and costs of employment, this could prove to be quite a big problem, for both employer and employee.

Last year was announced Targeted Anti Avoidance Rule (or TAAR) by Financial Secretary to the Treasury, David Gauke and this rule is aimed at Personal Service Companies that have been created just to avoid tax legislation. Now, the solution recommended by some tax experts could put contractors in a position where they could not be able to use their own PSCs to supply services.

However, the good news is that the problem might not be as serious as the HMRC previously stated in a discussion document about the IR35. In fact, it appears that most of the PSC contractors are not going to be affected in any way with the new changes to the IR35. While some contractors in the future might fall under IR35, this only means that they will have to give a reasonable salary and all dividend payments must be treated under PAYE. Thanks to this new legislation, most of the contractors are going to save some money since they are not going to have to pay accountants and umbrella companies anymore.

Document about the IR35. In fact, it appears that most of the PSC contractors are not going to be affected in any way with the new changes to the IR35. While some contractors in the future might fall under IR35, this only means that they will have to give a reasonable salary and all dividend payments must be treated under PAYE. Thanks to this new legislation, most of the contractors are going to save some money

Furthermore, contractors that have fallen outside the IR35 in the past will not be affected with the changes the contractors that do not work under Supervision, Direction or Control (or SDC) will still be able to work as self-employed even on agency contracts. These contractors are the ones that should not make any arrangements in order to avoid taxes, since they are already outside the rules defined by the IR35.

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