IR35 – what next for our old friend?

The House of Lords has just finished its report on IR35 and has recommended its reform!

House of Lords: the story so far….
The House of Lords “called for evidence” on the pros and cons of IR35. As you will know, IR35 aims to cancel out any tax and NI advantage individuals gain by running their business through a company or partnership.

Will it be scrapped?
Perhaps the most significant question was whether, given the ambiguous legislation and HMRC’s mostly ineffective attempt to enforce it, IR35 should be scrapped. The Office of Tax Simplification (which appears to have increasing influence) had previously recommended this option. However, the Lords have rejected it. Our Lords believe it would create too great a risk of unfair tax avoidance. This suggests that IR35 is here to stay!

Will it be changed?
The House of Lords report includes 16 recommendations, though some are not actually in respect of IR35. There’s nothing ground-breaking in the recommendations; in fact it all seems rather vague. The overall view is that HMRC should carry out (even more) studies and surveys and report back to the government with recommendations on how to make IR35 more effective. (As if we don’t have enough “studies and surveys”). If you were on the edge of your seat expecting the worse you can relax – at this rate it’s likely to be another two years before changes to the law are made.

HMRC IR35 Investigations.
HMRC’s evidence to the Lords Committee was that there’s no intention to increase its IR35 enquiries, but it will continue with its existing programme. If you do think you may provide services potentially caught by IR35, give Sapphire a call and we’ll talk you through your situation without any charge at all – remember we just love talking about tax 🙂

Sapphire Summary:
The House of Lords report doesn’t suggest any definite changes, the overall thrust is to urge HMRC to look again at the rules and recommend ways to make IR35 more effective. In our view that’s likely to take two years, so until then the (ambiguous?) status quo applies.

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