When it comes to controversy it has been hard to top the rules known as IR35. These provisions, introduced with effect from 6 April 2000, can affect individuals who work through intermediaries, such as personal service companies.
If caught by the rules, there is tax and NIC to pay on a deemed payment that normally will be treated as arising on the last day of the tax year. IR35 has given rise to lobby groups, court cases and countless articles as people have railed against its imposition. But the government is determined to tackle what it perceives as avoidance of income tax and NI and IR35 is with us to stay, at least for the foreseeable future.
The IR35 rules have resulted in many practical problems. However, a serious difficulty has been that, in spite of the intensive lobbying, it has been far from easy to successfully seek changes to the rules. The government appeared wary of making any changes that might be viewed as backtracking on its intentions and consequently taxpayers and tax advisers alike have been struggling with the rules as best they can.
In March, the Revenue issued a news release which announced for the first time minor, but welcome, changes to the IR35 rules. All tackle practical problems with the existing rules, such as difficulties that existed in relation to claiming mileage allowances and partners’ expenses. Does this open the way for further rule changes? Let’s hope so as there are a number of pressing issues that deserve attention and would provide practical assistance in the operation of the new regime without undermining the purposes of the rules.
The Tax Faculty of the ICAEW and the Chartered Institute of Taxation (CIOT) have been working for some time on seeking practical suggestions for change. For example, they suggest that a move to place IR35 on an accounting basis, rather than a cash and fiscal year basis, would eliminate many of the timing and ‘double taxation’ issues caused by the current rules. There is also clear scope for improving the ability of those caught by IR35 to get full tax relief for training and equipment costs.
The burdens of IR35 are not imagined. A recent tax faculty/CIoT survey highlighted that the compliance costs involved with dealing with IR35 are a real burden on those dealing with the rules. Any legislative change to address practical problems with the rules can only be welcomed.