While the IR35 Forum is playing its last round of hands close to its chest (details still haven’t been published of the last meeting’s deliberations), clues about the direction IR35 reform may take have just emerged from the Office of Tax Simplification.

A major recommendation, which should please many contractors who work through limited companies, is for HMRC to concentrate on high-risk cases where people are using personal service companies to disguise employment. Until now, the Revenue has looked at individual contracts, a method that has inherent absurdities: one contract could be ruled outside IR35 while the next could be ruled inside, while yet another could be ruled outside. The result is a protracted, costly and stressful IR35 investigation that targets hard-working and honest contractors.

The OTS is basically saying ‘out with all that’. Instead, it suggests HMRC use risk profiles to target those who are really practising disguised employment, leaving lifestyle contractors to go about their legitimate business without interference. The latter will be considered to be in business on their own account, even if the odd contract doesn’t tick all the boxes.

Many contractors who habitually rove from placement to placement can breathe easy if the OTS recommendations are implemented (we are likely to know more in the Budget on 21st March). However, those who remain in the same firm for extended periods may still come under suspicion as a disguised employee under the new system.

John Whiting, the Director of the OTS, said: “Overall, we think that the recommendations put forward today present a common-sense approach that would help to ease the burdens of thousands of the smallest businesses throughout the UK.”

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