Contractors’ Tax Rules criticised

In a recent report the Office of Tax Simplification (OTS) published a tax complexity index which revealed that the contractor legislation (IR35) is the joint fourth most complex and expensive tax for small firms to administer.  In addition, IR35 was scored top both in relation to its cost to the taxpayer and to H M Revenue & Customs (HMRC), which is responsible for ensuring compliance with the rules.

IR35 is a particularly complex tax to administer because it requires a subjective decision to be made to establish whether or not the rules have been broken.  There are no automated measures that can be used to establish whether IR35 rules have been breached or not.  However, the cost to HMRC of fighting and winning an IR35 case is typically more than it can recoup in taxes because contractors who lose cases do not usually have to pay HMRC’s legal costs.  They also often have insurance in place to cover their own legal costs, and cannot be pursued effectively for unpaid tax if they have no money with which to pay it.

So with the Government (via the OTS) admitting that IR35 legislation is not ‘fit for purpose’ has the time finally come to put an end to these draconian laws?

If you have any questions on IR35 or any tax matters contact your local Burgis & Bullock office on 0845 177 5500, or use our on-line form and one of our skilled experts will be delighted to help you.