OTS Announce Findings Into IR35 Review

The Office of Tax Simplification have today published their interim report into small business taxation and IR35. Their report has highlighted a number of issues and suggests recommendations, which have been put forward to the Chancellor before the budget on March 23^rd.

The OTS have identified a number of areas which could be improved in the short term, without having to make major structural changes, including; improving HMRC administration and their relationship with clients, simplifying the system for employee benefits and expenses and the VAT system for small businesses.

The two key areas that have come from their report, which they are bringing to the Government’s immediate attention, are;

• The integration of income tax and national insurance contributions (“NICs”); and
• Introducing a radical new approach to taxation for the very smallest unincorporated businesses.

In terms of improving on the current IR35 legislation they have suggested a number of options, one of which is expected to be announced as an alternative in the summer;

• Suspend IR35 with the intention of permanent abolition, using the period of suspension to investigate behaviours and costs; or
• Keep IR35 legislation unchanged, but improve the way it is administered by HMRC
• Consider the introduction of a new “business test”, aimed to reduce radically the size of the population potentially caught by IR35

John Whiting, Tax Director for the Office of Tax Simplification spoke about today’s report, which he said aims to help make tax issues easier for small businesses.

“Having listened to the concerns raised through our roadshow events and many representations, we hope we’ve identified the main problem areas and that people will agree these initial recommendations will improve matters. We’ve suggested ways forward on the thorny issue of IR35, though it’s clear there is no easy solution there.”

“We want to stimulate more debate on our findings, so whether you agree with us or not, we are keen to hear your views to help us develop our final report to the Chancellor later in the year.”

ICS will be following the Industry reaction to this announcement over the course of the next few days, so keep an eye on our blog. You can read the full OTS report on their website.

ICS work with a team of experts in employment and tax law to ensure our services are fully compliant with existing IR35 legislation and the latest government regulations. You can contact us now for a tailored proposal based on your individual circumstances as a contractor.