Conservatives could scrap IR35

 

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By Hani Megerisi

Posted on 31 Mar 2010 at 12:56

The Conservatives have announced plans to review the controversial IR35 tax regime.

Introduced by Labour in 2000, IR35 prevented contractors defining themselves as independent companies - a process that was very common among IT workers. Labour branded the previous rules a “disguised loophole”, that allowed contractors to avoid National Insurance and Income tax levies by paying themselves a low official salary, but high dividends.

IR35 was introduced despite a torrent of legal actions and campaigns by freelancers, who claimed they would suffer financially. One of the many changes meant firms could no longer claim tax back on travel and training for contractors.

It is badly drafted and unfair. If Britain wants a flexible workforce we need fair taxation

Now the Tories plan to reverse the rules. "IR35 has… proved to [be] over-complex, uncertain and often unfair,” said shadow business minister Mark Prisk.

The move comes as part of Tory plans for a new independent Office of Tax Simplification, which would review laws “with the aim of providing a clearer, lasting and fairer tax regime.”

Does it actually help the Government?

Prisk added that in the ten years since the rule was implemented, the change has failed to raise sufficient funds for the Government, but has cost businesses £73 million.

Last year, the Professional Contractors Group (PCG) found that it only generated £9.2 million in six tax years – just over £1.5 million a year. This falls massively short of the £220 million a year the HMRC expected to generate from National Insurance alone.

“The Government argues that it generates much more in compliance, but we’ve asked and asked for these figures and they haven’t given them to us and say they don’t have them,” a spokesman for the PCG told PC Pro. “We think it doesn’t generate much at all and actually costs the Exchequer more in tax investigation.”

Figures from the PCG show that, of the 1,468 IR35 investigations the group has been involved with, HMRC proved additional tax was owed just six times. “We think it is badly drafted and unfair. If Britain wants a flexible workforce we need fair taxation,” he added.