IR35 is dead – or is it?

IR35 has been the subject of much discussion over recent years. In the run up to the last election in 2010 there was some debate as to whether the regime should be scrapped. However, a report a House of Lords committee last year stated:

'We believe that the abolition or suspension of the IR35 legislation as proposed by the Office of Tax Simplification, whilst attractive, would be unwise if the legislation has the Exchequer protection effect claimed for it by Her Majesty's Revenue and Customs.'

It is proposed that HMRC should carry out and publish a detailed assessment of the current Exchequer protection figure and of the costs that taxpayers incur in dealing with IR35 to see whether the legislation is having the intended effect.

However, there appears to be no intention to try and make the payer responsible for the operation of IR35:

'We acknowledge that businesses would generally resist being made responsible for IR35 assessment, finding the additional administrative pressure and liability as overly burdensome.'

The committee seemed somewhat sceptical on HMRC's attempts to enforce the regime:

'HMRC did not convince us that the resources currently allocated were sufficient to ensure compliance with the IR35 legislation...many individuals simply take a risk that HMRC will not look into their employment status, an attitude that is fostered by the decreasing number of compliance investigations.'

However, we have seen more cases raised by HMRC in the last year than ever before, so it may be worth a mention to clients not to get 'lazy' when entering into contracts. You may also want to mention to them that guidance produced by HMRC on IR35, the Business Entity Tests, were withdrawn as from April, so they should place no reliance on this guidance going forward.