On 20th July the Office of Tax Simplification (OTS) was officially launched. The OTS has been tasked with producing a report on ways in which IR35 can be simplified or replaced. Any proposals by the OTS will not be made until next year’s budget.

Michael Jack, OTS Chair (and ex-Conservative treasury minister) along with John Whiting (Tax Policy Director at the Chartered Institute of Taxation) will both be unpaid for their work. As well as the review of IR35, they also have a massive 400 tax reliefs to review within the first year of consultation. Not surprising when Britain’s tax system is said to be one of the most complicated in the world. Individuals are still being recruited to complete the body and the work on IR35 is scheduled to begin in September.

Colin Ben-Nathan, Chairman of the CIOT’s Employment Taxes Sub-Committee, said of the inclusion of IR35 in the review:

“In a modern, flexible labour market, workers and engagers should be free to form the contractual relationships they choose, without having their arrangements second-guessed because the tax consequences of their choice differ from those of another possible arrangement.

“Rather than the tax system being used as an override to determine a worker’s status as an employee, we think their status should be based on their legal position in employment law and that the tax and NICs liability should flow from this.”

Whiting has already made brief reference to Australia’s old ’80-20’ tax rules concerning self-employed contractors, which may be cause for concern. The ’80-20’ rule dictated that if more than 80 percent of a contractor’s income was from one source, they could not be classified as a business for tax purposes. Although a move this drastic is probably unlikely (the 80-20 rule failed miserably in Australia), it could potentially cause huge issues amongst the contracting community. As we know, many knowledge-based professionals consider themselves to be genuine business where they have one major client that would provide for more than 80 percent of their income. This should be seen as good business sense not disguised employment.

There has been much speculation about the replacement of IR35 over the past few months, although whether or not IR35 can actually be simplified will only be discovered after the test of time. There is now genuine concern that something far worse than IR35 may be on the way. The OTS have plenty of time to decide on a replacement, so let’s hope they consider all avenues carefully and fairly.

Qdos will provide a full update when we know more, but if you would like to chat about this with a member of our Freelance Team please do not hesitate to contact us on 01455 852030.