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Revenue retain IR35 rule as 'ambiguous' tax law shows small sign of let-up for freelancers

Freelancers, contractors and small businesses have expressed further disappointment with the Inland Revenue after the taxman's declaration this week that there will be no review to controversial IR35 legislation.

Despite an explicit pledge by Gordon Brown in March to review tax schemes for small business, the Revenue have admitted that some SME policies - including IR35 - are to be frozen.

An IR spokesman said: "We have no plans to review the legislation."

The decision comes as industry voices and accountants have enforced tax treatment for incorporated businesses should be separate from unincorporated enterprise, such as sole traders, partnerships and the self-employed.

Simon Juden, PCG Director, said regardless of the announcement it was still possible the Revenue would re-consider their decision to extend tax rule IR35.

He explained that the small print in the Chancellor's Pre-Budget Report specifically left room for much needed tax concessions, which hopefully the Government will be keen to undertake.

"The Chancellor stated that the taxation of small owner-managed business would be reviewed. This means that the government has implicitly recognised that measures such as section 660A and IR35 are causing problems."

"It is going to take a look at the whole sector and set up of these regulations which, in effect prevent small business and freelancers from trading to their full effect."

Contractor UK reported last week JSA's attempt to back one of its own clients, Future Online, over stiff interpretations of IR35 ruling under the Revenue.

Andrew Hubbard, President at the Association of Taxation Technicians, told a Select Committee just a few weeks ago that with IR35, "you are depending on the Revenue's attitude."

"It is effectively a Revenue discretion matter, that the Revenue make just and reasonable adjustments."

"One can assume, and the Revenue has stated, that they will make those just and reasonable adjustments to ensure that double taxation does not arise, but I think it is profoundly unsatisfactory that you do not have a statutory right to say; 'in this context � this is the way,' your taxation is calculated."

Mr Hubbard told the Government that with IR35 the Revenue will probably, "interpret it in such a way, as to give you the 'right' result, but that cannot be right."

He stated there "ought to be a very clear unambiguous � 'this is how it works'," so small companies can take advantage of an element of certainty when it comes to future tax compliance.

Further signs of reviewing IR35 have emerged from the launch of a survey from the All-Party Parliamentary Small Business Group.

Contractors and SME are being urged to rate their enterprise experience with IR35, S660A and corporation tax charges as either 'not a problem' or 'a big problem.'

All types and size of business can voice their working concerns through the poll, with the results to form part of a forthcoming Westminster debate.

To take part and express your experience of IR35 please visit:
http://www.smallbusinessgroup.org.uk/attach.pl/389/69/taxsurvey.htm

Jul 2, 2004
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