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HMRC slammed in House of Lords Report – IR35 update

IR35 update

The House of Lords Select Committee has published a report on Personal Service Companies in which they make a series of recommendations, many of which do not show HMRC in a good light and no doubt reflect what many Contractors have been thinking for a long time!

The first recommendation suggests that HMRC carry out a detailed assessment of how much IR35 costs to enforce, so that a better assessment can be made on whether it’s having the intended effect and is proportionate.   The Committee accept that abolition of IR35 as proposed by the Office of Tax Simplification would be attractive, yet sadly deems it unwise if the legislation does indeed have the effect that HMRC claim.  HMRC have stated in the past that IR35 saves £550m so it will be interesting to see this figure justified.

The paper then goes on to acknowledge that the IR35 rules demand a great deal of time and effort by Contractors, and that it can be difficult for them to quickly and accurately know what their tax liabilities are given the contract by contract nature of IR35 and the need to have an understanding of case law.  Our own experience in talking to Contractors reflects this, with many feeling very exposed due to not having the time or expertise to really feel sure of their own status.

The Business Entity Tests also feature, which the Report suggests should be reviewed to see if they can work better to provide certainty for taxpayers.  HMRC’s Contract Review Service should also be publicised more, although how many Contractors trust HMRC to be impartial is another matter!

Other interesting points in the report concern making the Service Company question on the P35 and Tax Return mandatory fields, if HMRC deem them necessary, and a further review on the possibility of merging tax and National Insurance.

It will be interesting to see where this goes, so we’ll keep you updated as we know more.

Read the full report via the PCG website.


This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.