More than nine in 10 recruiters believe current IR35 tax rules are ineffective and must be reformed, according to a survey from the Recruitment & Employment Confederation (REC).

When asked what should happen to IR35, only 2.7% of recruiters said it should remain in its current form, while nearly half called for IR35 to be abolished altogether and 38% called for adjustments to the rules to give contractors, recruitment agencies and clients more certainty about the tax situation.

The REC says these findings will be fed into the Office of Tax Simplification (OTS), which is currently reviewing IR35 and will be submitting their initial report to the Chancellor later this month.

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.

REC Technology chair Jeff Brooks says: “IR35 has been an awkward, unsatisfactory attempt to tackle the problem of disguised employment ever since it was set up in 1999. These survey results make it plain that the recruitment industry would not accept anything less than a serious overhaul of the current system.

“While many recruiters would be happiest to see IR35 simply removed from the statute book, there would also be support for a pragmatic attempt to clarify the rules. If contractors, employers and recruiters could be certain in advance whether they fall within IR35 or not, many of the current problems could be eliminated.”