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Tories may scrap IR35 tax rules for contractors

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The Conservatives have pledged a "fundamental review" of the IR35 tax regime if they win the election, claiming it is unfair to freelance IT workers.

The rules were introduced by Labour in 2000 to target the "disguised employment" loophole. Contractors would set up their own limited company and take a low salary to cut their income tax burden, while paying themselves in large dividends to avoid National Insurance.

It prompted an outcry from self-employed IT workers, who mounted High Court challenges and claimed IR35 would cripple the UK IT industry.

Today, the Tories gave their clearest indication yet they may scrap it.

"For the past 13 years, Labour has constantly meddled with the tax rules for freelancers and self-employed," said shadow business minister Mark Prisk.

"IR35 has especially proved to over-complex, uncertain and often unfair. At a time when Britain should be open for business, Gordon Brown has made it harder to be self-employed."

Business groups claimed IR35 legislation was poorly written and harmed legitimate small firms. Last year the Professional Contractors Group publicised figures showing the rules had raised just £9.2m since 2002, compared to the £220m the Treasury predicted.

An examination of IR35 would be carried out by a new "Office of Tax Simplification" under a Tory government, Prisk said. ®

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