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Tories would scrap IR35

A David Cameron-led government would unveil a new deal for freelancers by abolishing controversial tax rule IR35.

An incoming Tory government would also reverse the tax rate on small companies, which Gordon Brown hiked by three per cent in the Budget in March.

And completing a tax wishlist for freelancers is the reported pledge by one Conservative MP to review anti-avoidance laws for managed service companies.

John Redwood, the former cabinet minister, yesterday failed to deny the measures are part of a new Tory deal for business, which he told Freelance UK is due to be announced on Friday.

Disclosures obtained by The Financial Times add that business chiefs “applauded” news of the party’s tax reforms, which amount to a vote-winning pledge to cut red tape by £14bn.

Much of the annual saving is expected to come from scrapping huge amounts of legislation which the party sees as unnecessary, outdated or excessive. At the weekend, The Sunday Telegraph reported that as a result, IR35 faces the chop.

Although the cost of enforcing the ambiguous law has not been disclosed, experts believe it is “substantial,” aside from cost to the taxpayer, which the Tories have estimated at £300m a year.

This is the sum total revenue the Treasury would lose by no longer having the Intermediaries Legislation on the statute books, but it excludes the wider costs to businesses.

John Kell, of the Professional Contractors Group, yesterday reminded that the government has admitted it is unable to say how much money IR35 has raised. Enforcing the tax rule, the PCG estimated, has cost a “substantial” amount of money.

Mr Kell said: “[The government] has also failed to assess the wider cost implications of IR35 for businesses who are not caught, such as insurances against Revenue investigation, professional contract reviews; time spent checking and negotiating contracts, obtaining real arrangements letters and undertaking other activity to assess status.”

The group’s submission to the Conservatives’ competitiveness policy group, which is chaired by Mr Redwood, highlighted the need for government to clarify employment and tax status.

A PCG spokesman reflected: “We hope that the party will adopt proposals to do this, and abolish IR35 accordingly – once employment status is truly clear, IR35 will be unnecessary.”

The freelance lobbyist said the potential cost to Her Majesty’s Revenue & Customs of killing off IR35 is, and will remain, unknown.

Moreover, the group cautioned “we do not know what replacement measures, if any,” the Tories would introduce.

But this is the second occasion IR35 has been in the crosshair of the Tories.

Yet this hasn’t allayed fears from business advisors. They say that like a worker who gets a pay rise, the UK government has become dependent on the extra income IR35 generates, because it is committed to spending it.

In March, shadow chancellor George Osborne pledged to reduce the tax take on companies with profits of up to £300,000, following Gordon Brown’s decision to increase it to 22% by 2009.

And speaking in July, one month before contractors became liable for the debts of managed service companies, Tory MP Philip Hammond, shadow work and pensions secretary, said the laws for MSCs need a review.

Although his pledge was not directly quoted by ContractorCalculator, he apparently told the portal that his party’s plan for a ‘massive shake-up in Britain’s nine-to-five employment culture’ would dictate scrutiny of the legislation.

The Tory plan for tax and red tape reform to the tune of £14bn may be haunted by the words of Michael Howard.

The former party leader has said it is unrealistic that changes to the UK tax regime can be made in a single swift unveiling.

Aug 15, 2007
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