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Call for shake-up to make IR35 irrelevant

10 February 2011
Categories: News , ContractorCalculator , IR35 , Employees , Income Tax
HMRC must rigorously police rules in medium term, claims white paper

The only solution for silencing the clamour of objections aimed at IR35 is to make the intermediaries legislation irrelevant through a shake-up of how income is taxed, according to a new white paper.

The document from claims a workable replacement for IR35 – officially FA 2000, sch 12 – is ‘nothing more than a pipe dream’.

The solution, at least in the medium term, is for HMRC to more rigorously police the rules intended to combat disguised employment of contractors and freelancers and for the department to provide greater clarity and guidance, says the paper, which claims it is realistic to expect that the ‘fundamental’ issue of taxation on income will be addressed by a wider review of the tax system.

Such a step would be the ‘only real hope… of cleaning up the IR35 mess’, says ContractorCalculator, a leading website for contractors and freelancers.

It adds that while ‘there should be no doubt that IR35 has been successful in raising considerable sums for HMRC’, it was created merely as a ‘sticking plaster’ and was ‘doomed to fail as being unenforceable’.

Acknowledging the Office of Tax Simplification’s (OTS) review of the legislation, the white paper, IR35 Solutions, claims the body has just three options to recommend: keep the rules are they are, repeal them without a replacement, a create an amendment or replacement – none of which would be workable.

The best hope would be an interim stage in which IR35 is implemented ‘differently and more effectively’.

The document’s author, Dave Chaplin, said, ‘I… sincerely hope that IR35 is not changed or replaced… I suspect HMRC will make a commitment to enforce [the legislation] more effectively, and use the huge information assets and expertise at its disposal to create a dedicated and expert taskforce to ensure consistency’.

Earlier this week, the Treasury sub-committee heard from prominent members of the tax industry that the Revenue was understaffed and its employees often lacked the training demanded by their roles. AC Mole & Sons tax partner Paul Aplin OBE, a former chair of the ICAEW Tax Faculty, told MPs that HMRC is ‘stretched almost to breaking point’.

Were the department to create the IR35 taskforce mooted by ContractorCalculator, it would most likely do so by moving around existing workers, thereby creating scarcities of staff members in other sections, Mr Aplin remarked to

He suggested that it would be unlikely for the Revenue to recruit from outside given the taxman’s ongoing programme of staff reductions and cutbacks to resources spending.

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