The future of the IR35 legislation

We speak to Seb Maley, IR35 expert and director here at Qdos Contractor regarding the IR35 legislation and the future of contractor tax.

‘The IR35 legislation is obviously something that significantly affects contractors. It’s been a thorn in their side since it was introduced in 2000, causing a great deal of concern and confusion.

Over the last decade, the way IR35 has been operated and policed by HMRC has been massively inconsistent, which in turn has created even more uncertainty for contractors.

Back in the early days of the legislation the number of enquiries carried out by the Revenue was significant. Contractors who had professional representation from firms like Qdos fared well, but HMRC did win plenty of cases.

However, over the last few years the number of enquiries declined, between April 2006 and April 2007 there were 158 cases, but this dropped to just 23 in the year ended April 2011. The actual tax yield also dropped accordingly, from £1.9 million to just £219k in the same period.

There has been significant opposition to IR35 since it was brought in, and these surprisingly low figures only served to add fuel to the fire. The government faced strong calls for IR35 to be scrapped completely and, in July 2010, they created the Office of Tax Simplification, which was established as an independent Office of the Treasury with a strictly advisory role.

The OTS was tasked with carrying out a small business tax simplification review which included the IR35 legislation and spent several months exploring all potential options.

Their interim report was finally released on 10^th March 2011 and recommended two options to the government:

• To suspend IR35 with the intention to abolish it completely, or
• To keep the legislation unchanged but make improvements to the way it is administered.

The government’s decision was revealed in the budget on 23^rd March 2011. They stated that IR35 would remain in place, as ‘abolition would put substantial revenue at risk’.

You have to remember that IR35 has been a successful deterrent for HMRC. Despite the low volume of enquiries and tax yield, over the years tens of thousands of contractors will have been put off going down the limited company route because of the perceived risk of IR35.’

The future of IR35 is concerning from a contracting perspective, with HMRC doubling their efforts in order to pinpoint ‘disguised employees’. If any contractors have any queries or further concern regarding IR35 and their professional status, then please contact us and speak to our expert team immediately.