The Office of Tax Simplification (OTS) urges HM Revenue & Customs to better enforce the rules around IR35.

In an interim report published today, the OTS recommends that IR35 be retained in its current form, with HMRC committed to enforce the rules better.

The report also recommends two other options including suspending IR35 while a permanent solution is found and introducing a ’genuine business test’ to add greater certainty for those potentially caught by IR35.

IR35 was proposed in the 1999 Budget of the then Chancellor Gordon Brown to target ‘disguised employment’ — workers who receive payments from a client via their own company.

These payments are not subject to NICs [National Insurance Contributions] as they can be treated as dividends and workers can also save tax by splitting ownership of the company with family members to place income in lower tax bands.

Chris Bryce, PCG chairman and OTS consultative committee member, says: “Should the chancellor accept the recommendation to abolish IR35 this would be a major advance towards honesty, transparency and fairness for the freelance community.

“We now wait for the Chancellor’s decision on the merger of NICs and Income Tax which will provide the basis for any reform.

“We have been telling the government and all interested parties that IR35 was not fit for purpose. We now call on the Chancellor to opt to suspend IR35 with the view of permanent abolition.”