IR35 is a tax legislation which is aimed at identifying those individuals who are avoiding paying the tax that they should be paying. It’s aimed specifically the self-employed, and the technology would decipher whether the individual is self employed or not from a tax perspective. Before 2000, anyone and everyone had the right to register as self employed – register themselves as an employee and then change their status to director. This mean that they earned more and paid less tax to the HMRC, despite their actual job never changing. Originally these types of people were named disguised employees. Since this scheme was discovered by the HMRC, they launched the 1R35 tool. Anyone can be investigated by the tax legislation, and if you’re caught by it, you could face serious penalties from HMRC.
The point of the 1R35 tool is to stop employees pretending that they aren’t employees, and to stop them receiving tax breaks that they are not entitled to. Since the beginning of the year, HMRC have stated that they are cracking down on IR35, in a bid to make an online test for employees to see if they would be caught out by the legislation. The tax authority has promised that the technology will catch out those willing to test and try the system they have put into place. However, Dave Chaplin, CEO of Contractor Calculator, has stated that the HMRC has misguided its thoughts on how complex the system it uses really is.
Responsibility for the new online system will rely on the public sector and agencies that will be deemed liable if their client is caught out by the IR35 legislation. As well Chaplin, there have been a lot of complaints by the contracting sector of the UK, who have stated opinions alluding to a failure in the system. Some people believe that as the sector is very complex in terms of job roles and arrangements, it may be too complicated for the system to make a judgement on who actually would be caught out by the system that HMRC will put into place April next year.
With the implementation of the device just under a year away, can HMRC live up to what it promised us back in 2010? Or will this be enough mess for them to clear up…