PAYE umbrella contractors may feel relieved that they decided against working through their own limited companies in the light of breaking news concerning the Office of Tax Simplification’s proposals for IR35 reform.  According to a report in the Daily Telegraph, the OTS is likely to argue on Thursday that the Treasury should integrate National Insurance Contributions (NICs) and income tax rather than replace IR35 legislation.

The OTS has been examining a range of small business tax policies, prominent amongst which has been the previous administration’s IR35 rules, which police approximately 1.4 freelance contractors.  The upshot of this process appears to be the view that the UK’s tax legislation is so complex because the Treasury is intent on preventing people using their employment status to dodge NIC payments.

Commenting on the ‘road shows’ which informed the OTS’ review across the country, the organisation’s tax director, John Whiting, said that a recurring major difficulty expressed by small businesses stems from NICs – the very issue which drove IR35 legislation in the first place.

There is, however, likely to be a good deal of anger and disappointment amongst small firms and individual contractors affected by IR35.  The OTS is thought to favour preserving the legislation but improving its administration by HMRC, even though an option to scrap the rules and replace them with an alternative ‘business test’ will also be put forward.  The latter would exclude individual contractors from having to comply with the system.

According to the British Chambers of Commerce, IR35 has cost businesses £73 million but appears to have raised little to no additional revenue.

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