The Budget proved to be a disappointment for those lobbying to be rid of the IR35 legislation.
As AccountingWEB member Greenhays reported first, paragraph 2.203 of the Budget document explained that the potential loss of revenue is too large for the Chancellor to contemplate doing away with the measure. Instead a package of reforms is promised to make the tax easier to administer.
The Review of Small Business Taxation by the OTS looked specifically at IR35. The report indicated that many businesses which were potentially affected by the provisions had “managed round” the tax charge that might arise, albeit at some expense (para 5.2 Small Business Tax Review interim report 10 March 2011).
The report’s key conclusion (at para 5.8) is most enlightening: “The reality of the situation is that there is probably no clear cut legislative alternative that addresses the concerns of all parties. In some places, the existing legislation is an effective deterrent to the use of intermediaries for the purpose of reducing tax liability on employment income. However, it is clear that in many other instances IR35 as it stands is not effective, either for the individuals affected or for the Exchequer.”
The changes announced today show that the government has plumped for retaining the legislation but moderating the administration of the measure.
The PCG was moderate in its response to the announcements, and stated, “We intend to play a key part in this process and are determined as a result to exclude all legitimate freelancers from the ongoing threat of an IR35 investigation with all the uncertainty that brings.”
It would be a surprise indeed if the new IR35 Forum did not include representatives of the PCG, in addition to representatives from the accountancy and tax profession, but of course it remains to be seen whether the forum is allowed to have any real impact on the future application of the rules. Clearly the PCG believes that this will be so.