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IR35 – an abomination in the eyes of the Lord?

IR35 – an abomination in the eyes of the Lord?

Now the dust has settled on the OTS report, it’s been fascinating to see the various reactions to it. Most interestingly, nobody seems to have focused on the biggest potential recommendation, that IR35 be suspended with immediate effect. Which is a shame, really.

Most of the discussion obviously centres on the main recommendation, that PAYE and NICs get merged into a single tax. As I said last week, this is a far from trivial exercise, although the ultimate benefits in terms of simplicity and consistency would be enormous. Even if Mr Osborne does take this on, as many commentators seem to think he will, it will be years before it is achieved. More importantly, if the focus stays on the anomalies that are bound to arise during the transition, such as pensioners who don’t pay NICs in the first place, rather than on the real benefits then it will go nowhere. So let’s hope that just for once the commentators and pressure groups keep their eye on the real prize and, just for once, look at the long term picture.

So assuming Osborne does bite the bullet and make a bid for being a seriously reforming Chancellor (as opposed to one who simply wants to cut everything, which is how the opposition want to portray him and which really is a load of Balls), then what is the next OTS recommendation?

That’s right – stop IR35. Whoo hoo…

Needless to say, even doing that is not that simple. What happens to the cases currently being investigated? Are they simply stopped, leaving the worker hanging without a decision in case it is later reinstated, as may happen? Are they abandoned altogether, which seems a little unlikely? Or will they be allowed to continue to a conclusion, which is my guess since legal processes are fairly much unstoppable once invoked. About the only certainty is that nobody else would have a simple PAYE audit mutate into a five year, £50,000 court case.

Take out IR35 and would we then see a rush of incorporations as all those who say they use umbrellas because they can’t be bothered with the administrative overhead of their own company suddenly realise it isn’t actually that much of a problem and the extra income would really come in handy. That wouldn’t do the umbrella companies a lot of good either, especially with the Agency Workers Directive kicking off later this year.

In fact the only people to remain comparatively unaffected by it all are those like me who have their own companies, understand the rules who are trying to work as a business and always have done.

The “In Business” tests didn’t get a lot of attention, possibly because the OTS doesn’t really see adding an extra layer of administration as a simplification, even if it would greatly limit the number of cases HMRC would have to worry about.

And the third option, that HMRC’s administration of IR35 be greatly improved, was described by PCG as “risible”. Not because the idea of HMRC doing anything even vaguely resembling effective administration is seen as something of a forlorn hope (which it is, of course), but until HMRC are subject to a formal duty of care and subject to a full cost benefit analysis of the cases they bring, there is nothing to stop them pressing cases that they have little or no hope of winning, just because they can. They demand we do everything 100% correctly and attack us for the merest slip, but are totally exempt from any such constraint themselves.

We have to wait until the Budget to see what is going to happen of course, but PCG are to be congratulated for driving us to the position we now find ourselves in, that not only HMG are recognising that IR35 is an abomination in the eyes of the Lord, but that they may actually do something about it.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited<

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