Osborne 'can't afford to ignore IR35'

George Osborne “can’t afford” to ignore IR35 when he unveils his Autumn Statement this Wednesday, owing to the sheer amount of ambiguity that has been publicised around employment status.

Referring to high-profile cases where the Intermediaries Legislation ought to have potentially intervened, such as at the BBC, a tax expert said the chancellor could not now duck an opportunity to tackle the “confused” issue.

Andrew Shaw, personal tax partner at Kingston Smith said that, following the “hype about the ambiguities surrounding IR35”, the chancellor may respond with a “plan to introduce objectively determinable tests of employment”.

Made more credible owing to the IR35 Business Entity Tests being introduce in May on only a trial basis, the accountant’s expectation is that Mr Osborne might this week “bring clarity and certainty to an otherwise confused area” of the law.

Mr Shaw reflected: “Following all the recent hype about the ambiguities surrounding IR35, the chancellor can’t afford to ignore this in his forthcoming Autumn Statement.”

Writing exclusively for ContractorUK, FreelanceUK’s sister publication, a leading accountant to freelancers agreed on Friday that Mr Osborne could indeed use his forthcoming statement to provide a “much-needed” update on IR35, or merely indicate plans for its future administration.

But seemingly against new statutory employment tests, Derek Kelly, of ClearSky Accounting, warned that “any replacement” of the legislation “would cause yet more upheaval” for freelancers and contractors. Also, it “would not necessarily remove the tax burden,” he said.

Another freelancer tax expert, Brookson, spoke of IR35 on Friday, when it all but told Mr Osborne that it is “far more reasonable” for engagers in the public sector facing the assurance process to independently review their contractors’ employment status, than any other alternative.

In terms of the private sector’s order to scrutinise its workers’ employment status, the company expects the chancellor to press on with rules he announced in March, though it thinks “the definition of a ‘controlling person’ may be revised”.

Brookson’s managing director also foresees the continuation of the General Anti-Abuse Rule on December 5th, initially conceived as the General Anti-Avoidance Rule until Mr Osborne re-christened in March. But it is still unlikely to target freelancers.

Martin Hesketh explained: “I am fairly certain there will be further announcements and refinements to the proposed legislation on a ‘GAAR’ [however]… we do not anticipate anything of direct relevance in this for contractors”.

Kingston Smith agrees that GAAR is likely to get the go-ahead on Wednesday, with a view to it taking shape “more or less in the form set out in the draft legislation,” from April 2013.

Yet it is the chartered firm’s expectation about existing tax rates, in particular those for companies with annual profits under £300,000, which personal service company workers will hope the chancellor doesn’t wave through.

“[There could be] a move to align the rate for companies with small profits, currently 20%, with the main rate [of corporation tax], temporarily raising it on grounds of ‘simplification’,” said the firm’s corporate tax partner Graham Morgan.

The potential alignment, which Mr Morgan acknowledged wouldn’t make Mr Osborne “popular” – at least not with freelance companies, appears at odds with what the chancellor is prepared to let-on about his statement before formally unveiling it.

Speaking to the BBC’s Andrew Marr yesterday, Mr Osborne said he would provide “specific help for small companies.”

For how he worded it, the help indicates supporting measures, such as an extension of the SEIS tax break, or an increase to its threshold, which Mr Morgan says would be a comparatively “easy” move for the chancellor to make.

Elsewhere in his televised interview, Mr Osborne said the tax authority would on Wednesday receive “new investment” from him so, as the NAO and others have called for, Revenue & Customs can improve how it tackles tax avoidance.

Editor’s Note: Full coverage of Chancellor George Osborne’s Autumn 2012 Statement will be live on FreelanceUK on December 5th, with in-depth reportage on its implications for freelancers from December 6th.

 

2nd December 2012

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