The CIOT Makes Recommendations Apropos the IR35 Reform in the Private Sector Aug 18, 2018Views: 190
The Chartered Institute of Taxation (CIOT) has recently published a response to the proposed IR35 reform in the private sector. The CIOT is an impartial education charity that works for an improved and efficient UK taxation system.
The response by the CIOT comes after the end of the governments’ consultation on the extension of IR35 reform on 10th August. The institute has questioned the decision to extend the controversial off-payroll working rules to the private sector. The key point raised by the institute is that the IR35 reform in the public sector has not been a success.
HM Revenue and Customs (HMRC) had estimated that around 58,000 more individuals had paid income taxes and National Insurance Contributions (NIC). This translates into an additional £410 million for the Exchequer. However, according to the CIOT, the increase in tax income and NICs may not necessarily be due to workers getting caught by the IR35 rules; it may be due to fee-payers acting more cautiously to avoid a fine.
A number of recent tribunal cases went against the HMRC. This suggests that the HMRC approach to the determining status of off-payroll workers is flawed. Also, the CIOT has said that it’s too early to contemplate about the success of the public sector IR35 reform. The reforms were introduced on 06th April last year while the last date of returns for tax year 2017/18 is 31st January in 2019. There could be more appeals regarding the IR35 rules that could go against the HMRC similar to the Jensal Software and MDCM cases.
Alternative to the IR35 Reform
The CIOT has suggested an alternative to rolling out the IR35 reform. A reporting requirement should be introduced similar to the one for businesses that are required to report payments to PSCs they engage on a regular basis.
In addition, the CIOT has suggested that additional instructions should be given to the taxpayer regarding off-payroll employment status. This should be reinforced by a penalty system whereby the workers should be jointly liable for noncompliance along with the PSC that had engaged them.
Other suggestions made by the CIOT include filtering PSCs to whom IR35 is not likely applied. Also, the CIOT has suggested that a process should be adopted whereby a PSCs would be caught by the IR35 automatically unless the agency proves otherwise. Also, increased penalties should be imposed in case a PSC fails to give adequate evidence against the ruling.
The CIOT also suggests that the PSC should not be taxed at source. Instead, the taxes should be paid as a genuine business provided the company provided evidence in this regard. The institute has called for making the tax rules less complex to avoid confusion.
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