OTS criticises controversial IR35 reforms

Controversial plans for an IR35 overhaul proposed by HM Revenue & Customs (HMRC) have come under fire from the Office for Tax Simplification (OTS), which is warning that such changes will overcomplicate the tax system.

The proposed changes, which are set be introduced in April 2017, would see IR35 compliance responsibilities shifted from independent contractors working into the public sector to their employers, public bodies and recruitment agencies.

This means that, in cases where a person is working for an organisation through an intermediary, such as a Personal Service Company (PSC), the PSC will be responsible for applying IR35 rules – and liable to pay any associated income tax and National Insurance Contributions (NICs).

According to the OTS, such changes will bring additional administrative burdens for those engaging taxpayers through intermediaries, who would effectively need to request information from taxpayers in order to determine each individual’s tax status.

The OTS has also said that ‘boundary issues’ and ‘market distortions’ are likely to arise between the public and private sector.

The proposed changes, which HMRC believes will raise approximately £400million through combating the increasing number of contractors it claims are failing to pay the correct tax under current IR35 rules, has come under increasing scrutiny in recent months.

In August, 90 per cent of IT sector contractors told a survey that they would ‘turn their backs’ on the public sector if the controversial reforms went ahead.