Outlined by the Chartered Institute of Taxation, the approach rejects the SDCs (‘Supervision, Direction or Control’) test in favour of an annual reporting obligation on end-users.
Based on each PSC contractor initially assessing whether or not IR35 applies, the end-user would then take that assessment and report to the Revenue whether or not it is in agreement.
If the end-user was to “wilfully” mislead HMRC that IR35 did not apply, when in fact it did, then any debt owed by the PSC under IR35 would “fall back” to the end-user, the CIOT said.
This approach would be better than ‘SDC’ because, under such an “inherently subjective test”, many PSCs who are “genuinely in business for themselves” would be wrongly caught.
So SDC would be contrary to an aim of the IR35 discussion document – not to widen IR35’s scope. It wouldn’t simplify administration, nor would it cut non-compliance, CIOT added.
It also believes that HMRC should accompany the new reporting obligation with a campaign to “give greater publicity to their successes in IR35 cases”, to increase awareness of the rules.