Associated Legislation Framework (Ir 35) Case Solution & Answer

Associated Legislation Framework (Ir 35)  Case Study Solution

The use of public service company in order to evade tax is not acceptable at any cost, however in some cases the need to form a company and work through the company becomes necessary because clients cannot afford the slightest risk by hiring any employee and the hassle that would be faced by them because of the employees and their retention expenses as well. HM RC should monitor the cases effectively and should make effective decisions to decide whether the organization comes under the ambit of IR 35 or not. The rules and the changes that have been made over the years in IR 35 laws have made the tax evasion strict however, the effective implementation of the law could be done by ensuring that the laws should not exploit the rights of innocent contractors.

IR 35 rules only apply to a specific contractor or entity when the contractor is classified as an employee or working directly for the client under the same terms and conditions. The rules clearly and effectively differentiate and identify the scope of applicability of rules on per contract basis that either he is working as an employee or self-employed basis. Rules are clear and concise, but still some organizations take advantage of being classified as self-employed and hide major taxes.However, there is an exception i.e. if the employee has 5% shares or less in the company of employer, then the rules are not applicable to the income generated by that employee.

HM RC considers several aspects while classifying the contract as to whether it would be considered as underemployed or self-employed, such as the control over tasks, who will bear the financial risk, the intention of the parties, the basis of payments to the employee or contractor and many other factors. Although the scope is well defined but still the government needs to take this system more consciously, and they have identified this thing as well. The scope of the rules and its ambit has been extended and diversified numerous times to cover the possible pitfalls and loopholes but still considerations are required on a regular basis to make it more effective and concise.

The advantages that an individual might get while working in the capacity of personal service company are huge;initially the individual would receive dividend from the company in terms of salary.Secondly, the range of expenses that a personal service company could claim against taxable profits have a wider scope than what the employee could get against the taxable income. On the other hand, the cash flow advantages and earning retention from the business can also be availed by the personal company.

Personal service companies also face some potential disadvantages such as lack of holidays salary benefits, sick pay and the absence of various rights and protections such as work time protections. Apart from that,the employees are also deprived of pension and other retirement benefits.

After analysis and the evaluation conducted regarding public service companies, it can be intergovernmental is keen to take the utmost advantages from tax revenue by effectively imposing the laws to the eligible individuals and organizations. In such a way, many milestones can be achieved by the government, however there are still some loopholes that must be catered in order to implement the effective legal and corporate system…………..

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