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CIOT tells HMRC to change its approach to IR35

The Chartered Institute of Taxation (CIOT) has had it with Her Majesty’s Revenue & Customs when it comes to the approach the tax authority takes to IR35 rules.

HMRC simply has to call greater attention to these disguised employment rules, says the CIOT, and it needs to do so by showing how contractors and other types of temporary workers can fall under the IR35 rule by specifically pointing out cases that were actually decided against contract workers. Disguised employment regulations are designed to target anyone trying to engage in tax avoidance by masquerading as an employee of a company while still operating like a contract worker by “working” for their own limited companies, even though they’re really operating like a regular employee; this tax avoidance process has been in the press everywhere over the last few years as some high-profile agency workers in the public sector were found to be pulling the wool over everyone’s eyes. Now, HMRC has IR35 violators squarely in its sights in an attempt to regain some respectability.

The tax authority is in the middle of considering changes to IR35 rules in order to make them more effective, and CIOT recently commented on the possible changes that HMRC has been considering. One, which is to transfer the obligation away from the individual but the organisation he or she is working for is likely to be an abject failure according to the trade industry body, as it’s unlikely to make non-compliance any less nor is it going to make administration of the rule any easier.  Meanwhile, the CIOT says that the new “supervision, direction, control” test to determine if agency workers are indeed masquerading as employees or not is flawed to the point where genuine workers might end up being called on the carpet when they actually haven’t done anything wrong.

So what’s the professional taxation industry body suggesting instead? Well it would like to see an annual reporting obligation that would be shared between organisations and the freelancers and contractors they hire in order to see if IR35 would apply on a case-by-case basis. The CIOT says that HMRC could target the organisation if it wilfully misled the taxman when it came to non-compliance.

So is this approach by CIOT actually a good one? Is it something we should look into adopting? Damned if I know. IR35 has been such a mess for years that it seems almost impossible to unravel the massive snarled rat’s nest that it’s become. At this case we might need to deal with it the way Alexander the Great dealt with the Gordian Knot – just cut it to ribbons and move on.

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