IR35 - Why Change is Needed?

 

IR35, also known as the Intermediaries Legislation, is a tax law that aims to prevent workers from using personal service companies (PSCs) to avoid paying income tax and National Insurance contributions. The law requires that workers who would be considered employees if they were engaged directly by the client pay taxes at the same rate as employees. 

 

 

There are several reasons why many people believe that change is needed to IR35. Firstly, the law has been criticised for being confusing and difficult to understand, leading to many contractors being unsure of their tax status. This has resulted in many contractors either paying more tax than they should or operating outside the law. 

 

Secondly, the law has been accused of unfairly punishing self-employed workers, who are often forced to work through PSCs due to the nature of their work. This has led to calls for the law to be reformed to provide greater protection for self-employed workers. 

 

Finally, the law has been criticised for creating additional administrative burdens for businesses, particularly small and medium-sized enterprises (SMEs). The administrative burden has resulted in many businesses either refusing to work with contractors or charging higher rates to cover the additional costs. 

 

 

Change to IR35 could benefit both contractors and the wider economy in several ways. Firstly, reforming the law could help to clarify the tax status of contractors, reducing confusion and the risk of non-compliance. 

 

Secondly, reform could provide greater protection for self-employed workers, ensuring that they are not unfairly punished by the tax system. 

 

Finally, reform could reduce the administrative burden on businesses, particularly SMEs, making it easier and more cost-effective for them to work with contractors. This could help to boost the economy by increasing business growth and creating more jobs. 

 

In conclusion, IR35 has been a subject of controversy and criticism for many years. While the law was introduced with the aim of preventing tax avoidance, it has been accused of causing confusion, unfairly punishing self-employed workers, and creating additional administrative burdens for businesses. Reforming the law could benefit contractors and the wider economy by reducing confusion, providing greater protection for self-employed workers, and reducing the administrative burden on businesses.