Britain's new coalition government yesterday firmed up the Tory pre-election promise to the self-employed, saying a priority for improving the nation's business ability was to review IR35.
In a 20-point plan for enterprise, the coalition government agreed their fourth priority was to review the unpopular law, introduced in 2000, as part of a "wholesale review" of small business taxation.
Although no timetable was given for the review, in the plan or subsequently by Tory officials, the agreement says the government will "seek to replace" IR35 "with simpler measures."
These resulting measures will "prevent tax avoidance but no do not place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility."
In welcoming the commitment, The Professional Contractors Group highlighted the unfairness that IR35 has imposed on freelancers, and all for a "miniscule" amount of revenue for the taxman.
Managing director John Brazier added: "Just look at the figures; they show that of the circa 1,500 IR35 cases PCG was involved with, HMRC has proved additional tax was owed in around 10."
Group chairman Chris Bryce said PCG met with Conservative and Lib Dem front bench teams about IR35, and would now "continue to work closely" with them to ensure freelancers were treated fairly.
Whitehall speaking with the contracting industry to develop its understanding of the marketplace before the measures to replace IR35 are drafted is crucial, said tax experts at Freelance World.
Compliance advisor Nick Stevenson said the firm "welcomes the review of IR35, but urges the government to seek the view of the contracting industry prior to...offering an answer to this problematic piece of legislation."
He explained: "It was clear from the 'False Self-Employment in the Construction Industry' consultation document, that the views and challenges of the construction industry were not really considered prior to offering a solution. This proposed legislation has now been put on the backburner, just like so many others."
Paul Spindler, a tax partner at Kingston Smith, the chartered accountants, said the confirmation that the IR35 rules were heading for an official review was welcome.
"To have tax legislation which interferes with proper commercial contractual relationships by deeming employment status has always seemed onerous and difficult to implement in practice," he said.
"A flexible workforce is a prerequisite for the UK to remain competitive in a global marketplace. My hope is that the simplification review does away with complex unworkable anti-avoidance."
Bob Jones, a former Inspector of Taxes for the Inland Revenue agreed: "The government needs to come up with a solution that will provide a framework in which businesses can flourish.
"They [the government] want a flexible labour force but are reluctant to grant that labour force tax relief on the travel/subsistence expenses that they must incur making it, at best, very difficult for some freelancers to operate."
The unfairness of IR35, he added, makes him "wonder whether the Revenue actually realises that the prosperity of the country is down to [such micro-] businesses creating wealth."
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May 21, 2010
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