No changes to IR35 rules in Budget 2012

The IR35 rules remain in place after Budget 2012, although an ambiguous statement in the Budget documentation may cause further uncertainty to contractors

In late February 2012, in its final report into small business taxation, The Office of Tax Simplification (OTS) said that it expected ‘substantive progress’ to have been made on improvements to the way IR35 is administered since an expert IR35 Forum was set up for this purpose after the previous Budget.

Although some industry commentators suggested that some announcements would be made in Budget 2012, it was always more likely that a separate statement on how the current IR35 regime could be improved would be made in the weeks following the Budget.

In the Budget document itself, just a few sentences were included on IR35 in Section 2.207, ‘Personal service companies and IR35’.

In addition to stating the Government’s intention to make the IR35 legislation easier to understand and enforce in the future, the document states that changes would be made that would include “subject to consultation, requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged. (Finance Bill 2013).”

Following over a decade of uncertainty and ambiguity over the IR35 legislation, this statement has once again caused contracting industry commentators to scratch their heads.

In all likelihood, the statement is probably aimed at public sector workers who have been remunerated via their own ‘personal service companies’ in the recent past, rather than being put on the payroll.

However, John Brazier, MD of PCG (a leading organisation for freelancers and contractors) said that he was seeking urgent clarification on these plans, and if they are intended to cover limited company professionals in general.

“These plans appear ambiguous and may affect senior interims and it is crucial that these legitimate businesses do not suffer as a consequence. PCG will be working hard to ensure that interims, consultants and contractors are represented in this process and defend the need for a flexible workforce in the UK.”