In July of last year, HMRC published a discussion document on the Intermediaries Legislation (IR35). The government believes that the current legislation is not working as effectively as it should and that there is significant non-compliance with the rules.
The IR35 rules are intended to prevent the avoidance of tax and national insurance contributions (NICs) by individuals supplying their services through an intermediary, usually a limited company known as a Personal Service Company (PSC). The IR35 rules do not stop taxpayers supplying their services through a PSC.
However, where the IR35 rules apply a person working through a PSC is required to account for taxes in a broadly similar way as if their end clients had employed them directly. Where the IR35 rules do not apply, using a PSC can offer significant tax advantages and flexibility to working in direct employment.
One of the options put forward in the discussion document is to make employers and/or engagers responsible for determining whether the Intermediaries Legislation applies rather than the PSC. However, HMRC’s own research on these proposals has met with significant negativity.
In fact, some organisations went as far as to comment that HMRC was ‘passing the buck’ and they were unable to see an upside for them. There were also significant concerns that these proposed measures would result in a significant increase in cost and administrative for the end-user of the services supplied. The measure would also reduce the flexibility that having temporary staff offers especially in sectors that are project based such as construction and IT.