IR35 abolition welcomed by contractors group

Kim Thomas, Computing, Tuesday 25 May 2010 at 17:58:00

PCG also praises government plans to set up an Office of Tax Simplification

The government?s decision to abolish the IR35 tax legislation has been
welcomed by the Professional Contractors Group (PCG), which was set up in 1999
to oppose the legislation.

IR35 came into force in 2000 and was designed to close a tax loophole that
allowed IT contractors to pay reduced tax and national insurance by offering
their services through a limited company, even though they were effectively
working full-time for a single employer.

The legislation aimed to stop contractors who were working long-term for a
single employer from setting up as limited companies.

John Brazier, managing director of PCG, described IR35 as a ?dreadful piece
of legislation? and said that it had ?caught everybody in the same net?, adding:
?People who have been working legitimately for many years as experienced
contractors in a number of different fields suddenly had to prove their
employment status, or lack of it, to the Revenue, who were treating everybody
with a freelance or contractor label as a tax evader.?

The legislation had not even proven effective from HMRC?s point of view,
added Brazier, who said that HMRC?s own data showed that IR35 brings in only
�1.5m a year in revenue.

?The last government didn?t really understand what small businesses of this
kind were about,? he said.

?There are some companies that engage a contractor for a short term contract
and then re-engage them on another short-term contract.

"There?s nothing wrong with that, but HMRC have interpreted that to mean that
because you?ve had a number of consecutive contracts, you?re just a regular
employee.

"But you?re either a limited company on your own and taking risks on your
account, or you want to be a full-time employee. The government should recognise
your status.?

It is not yet clear what will replace IR35, but freelance IT workers will
welcome the coalition government?s announcement that it plans to set up an Off
ice of Tax Simplification to introduce more straightforward, less bureaucratic
tax legislation.

In its Programme for Government document, the government said that it would
?seek to replace it [IR35] with simpler measures that prevent tax avoidance but
do not place undue administrative burdens or uncertainty on the self-employed,
or restrict labour market flexibility.?

Full story at http://www.computing.co.uk/computing/news/2263672/ir35-abolition-welcomed