IR35 risk to take big picture into account
The Government's thinking on IR35 is to look at the whole picture rather than isolated contracts when assessing IR35 risk.
The Office of Tax Simplification (OTS) revealed the shift in approach in its recent review on small business tax.
There is also ongoing work on guidance to show where there is a low risk of being caught by IR35.
In summarising its work on IR35, the OTS said:
"The original terms of reference for the OTS's review of small business tax required us to consider the specific issue of IR35.
"Two lead options were put forward in the interim report on small business tax: either suspend IR35, with the intention of subsequent permanent abolition (subject to the effect on behaviour and fiscal cost); or keep the legislation unchanged but make explicit commitments to improve the administration.
"In Budget 2011 the Government agreed to take forward the latter of these two options.
"Issues raised with the OTS included the fear of investigation, the length of time an investigation takes and enabling individuals to self certify their IR35 status with a greater degree of certainty. The Government is working on a number of new initiatives including focusing more on those who use personal service companies to disguise employment, rather than on those that may have just an isolated contract that may breach IR35, and publishing guidance to indicate where there is a low risk of falling foul of IR35.
"As with income tax and NICs, IR35 is a subject mentioned regularly in our more recent research. We reiterate the need to make substantive progress with the project set up in the wake of our previous report; we understand that changes may be introduced from April 2012, which will be welcome."
However, as reported by UKTECH last year, this is likely to be a shift in the way HMRC makes its risk assessments rather than a fundamental change in the ground rules of IR35, which would require legislation and is outside the remit of the OTS or HMRC.
HMRC is currently working to finalise improvements in how IR35 is run, based on the input of the OTS and its IR35 Forum members, ahead of an April 6 deadline to implement changes.