Any contractor who thinks that the government’s review of IR35 legislation is about to herald a new Tax Utopia could be in for a nasty shock. HMRC, keen to do everything in its power to help reduce a public deficit of cosmic proportions, is making it very clear that it intends to pursue all taxpayers for every penny of due payment.
Given that the Office of Tax Simplification (OTS) is still deeply mired in deliberations over what and how to reform, contractors are advised to ensure that they keep all relevant paperwork in order so that, if needs be, they can clearly demonstrate that they’re outside the scope of IR35. Because HMRC can (and will) launch retrospective investigations, it’s wisest to act as though IR35 is still alive and well and keep all documentation about both past and present contracts. Even if you’re winding up your limited company, if HMRC suspects that you’ve disbanded it in order to avoid correct tax and national insurance payments, it can investigate at any time, even if the company no longer exists.
The OTS is almost certainly encountering the near-intractable complexity of the UK’s byzantine tax system. IR35 underpins other legislation like the Managed Service Company Rules and the new Agency Workers Directive, to name but two, so it can’t simply be surgically removed, according to tax expert Kate Cottrell of the IR35 specialists Bauer and Cottrell. And the issue of tax avoidance, which IR35 was set up to tackle, will not go away – the OTS is committed to dealing with it through a fairer and simplified general overhaul of the entire system. Hopes of Utopia should perhaps be confined to daydreams; but a meticulously considered reform which really does deliver a simpler and fairer system would still be a welcome improvement.
