Contractors should not expect a fast end to IR35, and even predictions that it might be repealed or replaced in the 2011 Budget look optimistic. That’s according to an interview with John Whiting, tax director at the new Office of Tax Simplification (OTS).
Describing IR35 and the legislation surrounding it as a “ramshackle structure”, Whiting hints that quick-fixes to “streamline” IR35 may not be on the cards. Speaking to Taxation, he says: “...if we’re going to make any serious progress we should look at the whole thing. Does that mean looking at the whole subject of sole trader versus employee versus company? Yes, it possibly does.”
ContractorCalculator’s CEO, Dave Chaplin welcomes this measured approach, believing it was then Chancellor Gordon Brown’s haste to bring in IR35 that has forced contractors to endure an overly complex and unfair tax burden for more than a decade. “I’m pleased to see that the OTS seems to want to do things properly, and if that means it takes a few more months of IR35 than we’d ideally like, it’s worth it to avoid what Whiting calls a ‘sticking plaster’ solution,” he says.
Chaplin also points out that it is significant that Whiting has said: “IR35 was ... meant to ensure that those who really were employees got employment benefits, but that never happened.”
Maybe people have to accept that if we simplify to make things easier, it may make some of the edges rougher.
John Whiting, OTS tax director
As the ContractorCalculator CEO highlights: “That was part of the original draft of the legislation, but was them omitted in the final legislation. This omission was a major flaw and, without it, the entire burden of being caught by IR35 was put on the contractor. So, for 10 years we’ve had both the agency and employers not having to care about hiring disguised employees. If there had been a penalty for employers then they would make much more effort to ensure they got things right, so that contractors never got caught by IR35 and will not be unfairly caught by its successor.”
What seems clear from Whiting’s comments is that contractors must continue to take IR35 seriously and recognise that, even after its replacement is in force, the legislation will still be applied to current contracts. Plus, contractors should also not expect IR35’s replacement to lead to an easier ride from the taxman. As Whiting says: “For all the hot air it generated, there were real abuses that IR35 was meant to tackle. If it were abolished, they could come out again. Maybe people have to accept that if we simplify to make things easier, it may make some of the edges rougher.”
ContractorCalculator will continue to monitor and report on the IR35 Review being conducted by the newly Office of Tax Simplification (OTS).