Sector looks to post-election IR35 reform

There is hope within the tax sector that IR35 legislation will be reformed following next week’s general election.

The rules covering personal service companies have come under fire frequently since coming into force ten years ago this month. Now some tax experts are upbeat about the possibility of change or abolition by whichever party forms the next government.

The PCG, the professional body that represents freelancer and contractors, said it was optimistic following ‘a series of meetings with various political parties’ that proved to be ‘fruitful and productive’.

‘We detect from all political sides a desire for a revision of IR35 legislation and, indeed, we received a boost in our battle for fairness over this invidious tax only last month,’ said the organisation, referring to a letter it had received from the shadow business minister, Mark Prisk.

The Tory MP wrote to say that, as a result of the PCG's strong representations to him and shadow Treasury ministers, ‘a Conservative government would undertake a fundamental review of small business taxation matters, including IR35’.

The trade body’s Simon McVicker said: ‘This is a sensitive issue and exceptionally important to the PCG’s 20,000 members. For their sake it is important we get a fair and amicable resolution to this piece of unfair and unworkable legislation.’

Last month, Mark Prisk announced that his party would undertake a ‘fundamental review’ of the IR35 set-up, which he said had ‘proved to [be] over-complex, uncertain and often unfair’.

Anne Redston, author of IR35: Personal Service Companies, said while a Conservative government would be the most likely to change or abolish the contentious IR35 rules, any of the three major parties could be expected to address the issue – even Labour, which introduced the legislation.

‘The [current] government and HMRC have to admit IR35 is not working well enough. It costs huge amounts to enforce without sufficient returns, and it is very inefficient to pursue individuals to whom the rules may apply,’ said Ms Redston.

‘The managed service companies rules of 2007 removed the worst cases from the IR35 legislation, and what it left are people who are either genuinely outside IR35 or who do their best appear to be unaffected. The rules are ripe for reform,’ she added.

Barrister and chartered tax adviser Keith Gordon said he wouldn’t like to speculate on the likelihood of IR35 being abolished, but he would not be sorry to see the rules go. 

‘Their repeal would be an improvement to the tax system and would not necessarily require the introduction of new… legislation to replace them. The ideal scenario would be a proper review of the taxation of small businesses – but the early abolition of the IR35 rules would be a welcome sign of goodwill,’ said Mr Gordon.

His sentiment was echoed by Rebecca Cave, director of Taxwriter Ltd, who said IR35 needs to be ‘examined in the round’.

‘It can’t simply be abolished because it would leave a hole. It needs to be reviewed as a total review of small business taxation,’ she remarked.

Categories: News , IR35 , Employees , Income Tax