IT contractors in the UK receive little help or clarification from the government regarding the new IR35 taxation rules, a paper from the National Audit Office (NAO) suggests.
IR35 is a piece of legislation designed to head off scenarios whereby full-time workers masquerade as contractors in a bid to earn tax breaks. But its implementation has caused a number of issues so far.
As reported by The Register, the NAO paper states that Her Majesty’s Customs and Revenue (HMRC) did not properly clarify the “controversial new rules”. Furthermore, there is no legal framework to help interpret the rules.
When public sector agencies tried to adhere to the new IR35 tax rules, they did not take “reasonable care” to prevent errors, including when answering questions in CEST (HMRC’s online IR35 assessment tool), the NAO states. However, HMRC did not explain what “reasonable care” entails.
“HMRC collects the amount due in accordance with the law at that time. It does not offset the total amount against any tax the worker or their professional services company already paid and told us this was not allowed within the current legislation. This means that HMRC collects more tax in total than is due,” the report explains.
“Once the non-compliant client organization accepts that its determinations were incorrect, the workers become entitled to claim back the tax that they and their PSCs have already paid. If they do, they in effect pay no taxes on that income because these are borne in full by the non-compliant public body,” it says.
Unhelpfully, HMRC does advertise this fact, and there is no telling how many workers have failed to reclaim their taxes as a result.
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