It’s IR35 once more
It is no secret that one of the most intractable problems that the OTS is wrestling with is the question of IR35 (although at the start it was seen as possibly providing a “quick win”).
The measure appears to produce very little tax: actual statistics on how it works and who wins before tribunals are very hard to come by, with HMRC pointing to successes in the courts and contractors’ groups claiming more than 90% success rates in seeing off HMRC enquiries.
And why does it not produce lots of tax? Because it was largely based on a myth. The myth was that there was low level tax avoidance going on on a massive scale, with contractors leaving their employment on Friday and restarting as limited companies on Monday. It did happen: but not enough for the moral panic it seemed to produce. And of course it was meant to produce a deterrent effect, and that does not seem to have happened.
The truth was and is that most of such incorporation is driven by the fact that if contractors want to work, they have to work through a limited company or else the agencies, not wanting to end up having to grant employment rights, will not look at them and the end users work with agencies for the same reason. These same agencies then skim a large chunk of the fees being paid by the end clients – sometimes, I am assured, 30-40%, before these reach the contractor company.