A ‘look-through’ system of taxation which would make IR35 mostly redundant is no longer being recommended by the Office of Tax Simplification (OTS).
The body has confirmed that it no longer suggests that the system be implemented as it would not make taxation any easier for small companies across the country. First proposed by the OTS in March of this year, with the aim of lightening the tax load on PSCs by taxing shareholders on their PSC profits and removing their need for corporation tax, the system would have made IR35 “redundant to a degree." However, after further examination, the OTS said that the cons of the system outweighed the pros.
“The simplification gained by eliminating the need for corporate tax compliance is outweighed by the technical issues that such a process raises. There would still be a need for an ‘adjustment of profits’ exercise. In addition… look-through potentially damages the funds retained for investment by taxing retained profits at full income tax/NIC rates," the body said.
“From a tax simplification point of view, we would not recommend look-through as a method of simplifying tax for small companies," confirmed the OTS.