IR35 was introduced in 1999 to target people working as a contractor or freelancer – even though they are effectively doing an employee’s job at a single company – in order to save tax.
At the time this legislation was introduced, it was unusual for a senior or controlling person to be engaged through their own limited company. However, a recent review by Chief Secretary to the Treasury, Danny Alexander, found that 2,000 senior people in the public sector were being paid off payroll, potentially lowering their tax liabilities.
Consequently, the government wants to ensure individuals in a senior position with the level of control to direct the activities of the organisation should be taxed as an employee at source.
To achieve this aim, the government has consulted on the introduction of legislation which would require public and private organisations to place all controlling persons on their payroll, even if the payments are made to a company rather than the individual themselves.
However, in its response, the Chartered Institute of Taxation (CIOT) argued that, as the problem seems to be within the public rather than private sector, the proposed tighter rules for off payroll appointments by central government should be applied to local government and other public sector bodies.
Combining this with the existing IR35 and agency worker rules would meet the government’s aims, CIOT said, eliminating the need to introduce new rules for the private sector.