It’s been 18 years since the IR35 legislation was introduced but changes to the operation of the legislation for public sector workers, and several high profile tax cases, have brought the IR35 debate to the forefront once more.
The aim behind IR35 was to ensure that where an individual provided services via an intermediary, such as a personal service company, the parties could not avoid paying the tax and national insurance that would have been due had the individual been regarded as an employee if engaged directly . HMRC seem to have a renewed vigour in approaching these cases given recent criticism from The House of Commons’ Public Accounts Committee and successes in the courts, so it is likely that the number of appeals on IR35 matters will increase.
The recent case of the BBC presenter, Christa Ackroyd, highlights just how much money is at stake for HMRC where IR35 applies. Ms Ackroyd was the former BBC presenter for Look North. Like many presenters at the BBC and no doubt other media outlets, she was advised to set up and engage with the BBC via a personal service company. She lost her First Tier Tribunal case which ruled that her personal service company owed income tax and national insurance contributions of £419,151, dating back over a 6 year period.
The problem has always been that it is very difficult for HMRC to identify cases which may fall within IR35, so there has been a distinct lack of action by them since the introduction of the rules. In April 2017, changes were made to contractors operating in the public sector so that the public sector body, rather than the intermediary, have to determine whether the engagement falls within the rules, shifting the burden and risk. According to HMRC this revised approach has resulted in an estimated 58,000 extra individuals paying income tax and national insurance for public sector engagements. There have always been uncertainties surrounding the legislation and how it should be applied so you have to wonder whether public sector bodies are treating engagements as if they fall within the rules, with the additional costs being passed on to the individuals, so as to avoid any risk.
HMRC have published a consultation paper looking to extend the public sector rules to the private sector from April 2019. It is important that the rules are followed and any engagements falling within IR35 are correctly identified and taxed. However, the rules should be clear and applied fairly across the board. The consultation will hopefully enable any problems with the public sector changes to be ironed out before being introduced to the private sector and is well worth a read to see how it might impact on you.
If you have any concerns surrounding IR35 and how the potential changes might affect you, please contact one of the team on (01892) 507 288.