IR35 off-payroll working

Approximately 60% of AAT’s 140,000 members either work for or run their own SME. In addition, AAT’s 4,250 Licensed Accountants provide tax and accountancy services to over 400,000 small businesses. It would therefore seem logical that AAT would support the small companies exemption created by government.

The exemption from IR35 for small businesses was superficially attractive but the decision to use the definition of “small” under the Companies Act created additional problems. This is because the Companies Act allows for a small subsidiary of a large group to be classified as “small”, meaning that large companies would have been free to evade the new off-payroll working rules by forming small, exempt subsidiaries, whose sole purpose would have been to engage contractors.

HMRC has addressed this initial oversight by inserting additional anti-avoidance wording into the revised legislation. As a result, this has created yet another layer of complexity. It remains unclear whether the rules here are sufficiently robust to prevent avoidance.