The IR35, introduced by the Labour party in 2000, prevents contractors from defining themselves as independent companies – a process that was extremely common amongst IT workers.
Labour branded the previous rules a “disguised loophole” that enabled contractors to avoid National Insurance Contributions and income tax duties by paying themselves a low salary but high dividends.
Despite a stream of legal action and campaigns by freelances who claimed they would suffer financially, the IR35 regime was introduced.
One of the many changes meant that firms could no longer claim tax back on travel and training for contractors.
However, the Tories now plan to reverse the rules.
Shadow business minister Mark Prisk said:-
“IR35 has… proved to [be] over-complex, uncertain and often unfair.”
The move comes as part of the Conservatives plans for an independent Office of Tax Simplification which would review laws “with the aim of providing a clearer, lasting and fairer tax regime”.
In the ten years since the IR35 was implemented, it has failed to raise sufficient funds for the Government but has cost businesses a staggering £73 million.
In 2009, the Professional Contractors Group (PCG) found that the IR35 rules had only generated £9.2 million in 6 tax years – on average just over £1.5 million per year.
HMRC had expected to generate £220 million per year from National Insurance alone.
A spokesman for the PCG said:-
“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. We think it doesn’t generate much at all and actually costs the Exchequer more in tax investigation.”
Figures from PCG show that out of 1468 investigations they had been involved with, HMRC proved additional tax was owed in only 6 investigations. This is less than 1%.
“We think it is badly drafter and unfair. If Britain wants a flexible workforce we need fair taxation” the spokesman added.
“It is about time to get rid of this absolutely useless piece of legislation.
Since it has been in force it has caused nothing but problems for the Government, HMRC, taxpayers and accountants.
Good riddance to bad rubbish!”
If you are the subject of a status or IR35 investigation then you need professional guidance and representation.
Call KinsellaTax on 0800 471 4546 to speak to an experienced adviser 24 hours a day.