The Conservative Party has announced that IR35 will be reviewed as part of an overall review of small business taxation, should they win the General Election in May.
In a letter to the PCG, the Shadow Business Minister, Mark Prisk MP said that, due to the group's strong representations, “a Conservative Government would undertake a fundamental review of small business taxation matters, including IR35.”
As part of the review, FreelanceUK understands that the Tories would take account of the deterrent effect of IR35, and how IR35 underpins other legislation, such as the Managed Service Company rules and the incoming Agency Workers' Directive.
More importantly, the party will take account of any "IR35 simplification processes already in place," said a source close to the review team.
According to the official announcement, a David Cameron-led government will set IR35 as a priority for a newly established Office of Tax Simplification. This body will be made up of tax experts with whom PCG would work closely.
“We recognise and value the contribution of freelancers and we are well aware of the way in which the current Government has treated them," Prisk wrote in his letter.
"We want to deal with this problem comprehensively, in a way which provides us all with a lasting solution, not a short term fix.”
IR35 has, since 1999, caused "massive and unjustifiable problems" for freelancers who, in spite of the legislation, still contribute £21 billion to the economy.
Reflecting on the Tory party's pledge, PCG added: “We believe this solution has the potential to lead to a fairer and more workable tax regime for the vast majority of those who work freelance...however, will not be complacent.
"[We] will continue to make the strongest possible representations to any government of whatever colour after the election to remove IR35, which is a grossly unfair and badly drafted piece of legislation.”
Kate Cottrell, an expert on IR35, welcomed the review and said many small business, particularly one-person contractor companies, would regard it as good news.
"Given the state of the UK finances, I expect some improvements will result for traditional small businesses with the reduction in red tape," she said.
"But I also expect there will be little to celebrate for contractors, as it would be naïve to think that any simplification could result in anything other than significantly increased tax/NIC bills in line with all the political parties commitment to 'fairness' in the tax system."
At the time of writing, the Conservative Party was unable to comment whether a strengthening of the IR35 legislation, including stricter enforcement, was a possible outcome of the review.
"Our aim would be to create a clearer, stable and lasting tax regime for the self employed and small businesses," Mr Prisk said this week.
"As someone who was once self employed, I know how infuriating the IR35 rules can be. They are designed to stop tax evasion, but were introduced in such a clumsy way by Labour that they have affected millions of people who are acting perfectly reasonably."
Apr 8, 2010
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