IR35 should be abolished or reformed, says OTS

THE TREASURY SHOULD suspend IR35 or compel HM Revenue & Customs to make changes to its implementation until wider structural reform is introduced, the Office of Tax Simplification has said.

The legislation, which stipulates employment income through the use of intermediaries, would be rendered redundant by an integration of National Insurance and income tax, the OTS said in its review on small businesses. Until this happens, the government should consider suspending it with a view to abolishing it or make specific changes to its enforcement.

The anti-avoidance measure was "administratively burdensome", the review said. It added that the legislation had been "managed round" by contractors with "few, if any" people being subject to it.

An abolition of IR35 would deliver the greatest improvement, the report said, and would be welcome in the contactor communities. However, this could result in greater use of intermediaries to reduce liabilities, especially considering the "aggressive marketing strategies used in the IR 35 industry", it warned. This could lead to "significant" Exchequer funds being put at risk, the report added.

Improving the administration of the policy would deal with issues such as the fear of investigation, the length of time an investigation took and the uncertainty involved.

It also suggested that a range of simple business tests could be introduced to exempt certain businesses from IR35. This recommendation, however, received strong opposition from some members of the consultative committee, as well as support.