The Chartered Institute of Taxation (CIOT) has called for a new approach to IR35 rules, urging HM Revenue & Customs (HMRC) to do more to increase awareness of the legislation by highlighting specific successful cases against flexible workers and contractors.
IR35 targets individuals who avoid tax payments by becoming a disguised employee through operating as a self-employed contractor for their own limited companies, despite performing the same role as a traditional employee.
The CIOT believes HMRC’s attempts to transfer the IR35 compliance obligation to the organisation that the individual is working for will not reduce non-compliance or simplify administration, while plans for a new ‘supervision, direction or control’ test could catch more genuine workers.
The professional tax body has instead called for an annual reporting obligation that would require organisations engaging with contractors and freelancers to communicate with each other about whether IR35 applies. The organisation would then report what the individual has said and whether they agree.
The CIOT claims this approach would mean that the organisation would be to blame for non-compliance if it wilfully misled HMRC about the details.
The CIOT’s chairman of the Employment Taxes Sub-Committee, Colin Ben-Nathan, said: “It is clearly wrong that some people get away without paying the correct amount of tax and NICs because they are playing fast and loose with IR35 either through ignorance of the rules or deliberate non-compliance.”
He added: “In our view HMRC needs to give greater publicity to their successes in IR35 cases to increase awareness of the rules and where they suspect outright evasion then clearly they should come down hard on those involved.”