Reviewing IR35 – The Select Committee on Personal Service Companies

The long-awaited IR35 review has finally come before the Select Committee on Personal Service Companies at the House of Lords, after their call for evidence in November.

The number of Personal Service Companies (PSCs) has increased and will probably continue to do so, while at the same time HMRC’s resources dwindle, so I can see why they would be keen to get this in order. Lots of submissions have been made both for and against IR35.

Interestingly, in November’s call for evidence, one of the House of Lords’ aims was to look at how PSCs were formed – so whether contractors are pressured by businesses to have a PSC, rather than joining an umbrella company. If they are forced should the responsibility for ensuring compliance with IR35 be placed on the business or the contractor? After all, in all practicality, PSCs are not the best choice for everyone, and of course, Managed Service Company legislation has not gone away.

The business entity test was the first step in reform, and was created to give clarity to contractors on how they stood with IR35, and can only help the House come to a final decision.

My view is that little will change. IR35, while not in the press through cases won, is a deterrent and most workers don’t want HMRC knocking on their door.

However, the big question on everyone’s mind is will dividend income be treated as earned income? If so, then IR35 has run its course.

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