A House of Lords select committee has been formed to review IR35 and the taxation of personal services companies. This means that changes are surely on the way – perhaps as early as April 2014. Could you be affected?
When is IR35 used?
Instead of working for a company as an employee an individual can set up their own company to receive payment for the work that they do on the company’s premises. This means that the employer (i.e. the customer, since the individual is effectively self-employed) avoids paying the PAYE and NI that would be liable if the individual had an employee contract.
IR35 rules are ‘supposedly’ used to identify and curb blatant tax avoidance in cases where a personal service company has been set up purely so that the business paying for the services avoids any PAYE and national insurance contributions.
Sounds straightforward, but there is a ‘but’…
The problem is that IR35 is full of holes. There have been several attempts to improve the effectiveness of the rules, however despite that innocent companies are often caught out by the badly written and obscure guidelines, while those who are using IR35 dishonestly are most likely getting away with it.
The IR35 crack team
But, that’s about to change. A House of Lords select committee has been put together to review IR35 and tax collection from personal service companies. The committee recently put out a call for evidence in relation to the activities of personal services companies (to which anyone with an interest was able to respond). Public oral hearings have also taken place.
This evidence is now being reviewed by the committee with their findings expected to be released in March 2014.
Changes are coming
Once the review is complete, the report will receive a response from the Government and could be debated in the House. Following that there will no doubt some big changes to the taxation of service companies, perhaps as early as April 2014. So, if you run a company that works in this way you should stay on your toes as HMRC could be after you.
To discuss this post contact Stephen Usher on 0141 418 6550 or email@example.com