OTS's review will focus on more than IR35
While the review of IR35 has perhaps dominated the discussion of the Office of Tax Simplification (OTS) review on small business taxation, it is not the only aspect under scrutiny.
Contractors accountants Danbro argues that small business taxation covers a broader range of elements which could have a significant impact on the income and operating methods of IT contractors.
It has suggested that the OTS could look at disguised remuneration; husband and wife limited companies and the definition of a professional contractor.
Disguised remuneration
Danbro said: "Many commentators within the industry believe that it is only a matter of time before HMRC reclassify dividend payments as being remuneration which would effectively mean those dividend payments would be subject to higher tax."
It cites as a possible sign of things to come, the PA Holdings Case in 2010, where the Upper Tribunal (Finance and Tax) found that bonuses paid to employees of PA Holdings as dividends were held liable to NICs but not PAYE.
Husband and wife limited companies
The announcement made by the Government to stop child benefit for families that have a high rate taxpaying spouse could lead to husband and wife companies to be reviewed by the OTS, according to Danbro.
It said: "The fact that some contractors operating their own business can share income between spouses and even leave profits within their Limited companies to avoid the higher rates of tax, enabling them to still qualify for these benefits, certainly increases the likelihood that this area will come under scrutiny."
Definition
Danbro argues that a clear definition or set of criteria would allow appropriate legislation to be applied (ie IR35 or agency workers regulations would not apply to professional contractors).
This follows a similar stance by service providers, Professional Passport, which has been calling for an unambiguous way to identify;
- Professional Contractors: "those that see their long term career as a contractor, do not want any enhanced rights or protection and see themselves as operating their own business with associated risks": from....
- Temporary contractors; "those that contract until they can find a new permanent position".