Office of Tax Simplification: Suggest look-through companies, to deal with IR35.
The OTS have been reviewing the taxation of Personal Service Company’s, with the aim of dealing with the “issue of IR35”. They are recommending the shareholders of PSC’s pay income tax on the company profits directly, instead of via corporation tax. This “look-through” taxation would put company owners in the sole trader tax system.
To ease the tax burden on small companies, they are also considering a new trading vehicle, in addition to sole traders and limited companies. This would give the simplification of unincorporated trading whilst ensuring the correct amount of tax is being paid. The OTS acknowledged that many customers will only award contracts to companies, so the new vehicle will also have the benefit of limited liability trading that PSC’s will require to win contracts.
We now await comment from the government.