Manifesto: The time has come to tackle IR35
Political parties are laying their cards on the tax and small business policy table. As such, AccountingWEB and FreeAgent have teamed up to launch a policy statement on the issue that has provoked some of the most heated debates on the site for the past 15 years: IR35.
Our long-running campaign, going back to an online survey in the autumn, established that for 85% of AccountingWEB members, the personal services company tax regime has created uncertainty around contractors’ tax status.
More than three-quarters of our members report that proving proving employment status created extra costs for clients and 56% said IR35 fears have held clients back from new business.
While most accountants would agree with the sentiments expressed in the survey that “tax avoidance has to be tackled”, the prevailing view is that IR35 is a sledgehammer being used to crack the “disguised employment” nut.
In the words of FreeAgent founder Ed Molyneux: “We’re working around issues that are trying to solve a symptom rather than the root cause. There’s an opportunity now to set a policy that reflects how the workforce is shifting - something radical that might improve how things operate in this country.”
Based on feedback from AccountingWEB’s we compiled this manifesto to stimulate debate about IR35 among policy makers, politicians, professional tax and accountancy bodies and contractor organisations.
A narrow majority (52%) of IR35 survey respondents favoured abolishing IR35 to “free entrepreneurs to work the way they want”. This makes it difficult for us to claim a mandate for outright abolition in the IR35 manifesto - and the signals from tax experts and policy makers indicate that this would be a non-starter, whatever the hue of the government that gets into power next month.
As a result, the manifesto calls on the political parties to publicly commit to IR35 reform during the campaign and advances the three most popular options among AccountingWEB members:
- Option 1: Merge income tax and NICs, as recommended by the Lords PSC committee in its report last March.
- Option 2: Clarify employment status through legislation. Redrafted laws that set out clear criteria for employment could shift the administrative burden and tax liability risk back on to the employer, according to 12% of our survey respondents.
- Option 3: Impose NICs on close company dividends According to AccountingWEB member Eyrie, “The simplest solution would be to treat dividends from a close company as a deemed salary subject to income tax and NIC, rather than the lower tax rate applicable to dividends, and have this deemed salary deductible for CT.”
Our objective is to propose improvements and solutions that balance the need of contractors and their advisers for stable, fair and predictable tax treatments with policy makers’ concerns about tax avoidance.
What are your views on the options presented? Since the wider community is somewhat divided on the issue, our manifesto does not demand a specific change, but seeks to build a coalition around the idea of constructive reform. What points would you want the policy makers to address? Have a look at the IR35 manifesto and let us know what you think by commenting below. You can also download the ultimate IR35 guide produced in response to our autumn survey.