Tories may scrap IR35 tax rules for contractors
Fairer for freelances
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. ®
It did for the independant small contractor.
Big corporate concerns were not affected, except insofar as it
removed some rather irritating & annoying competitors.
Not avoiding Tax
They were not avoiding tax and did not avoid tax. Tax was payable at the normal rate on salary or dividends.
They only thing saved on by operating in this way was National Insurance and even then they would (or should) ensure they pay the minimum contribution.
It is what every other company can do, just contractors (and not just in IT) were targeted.
Bearing in mind officially contractors could claim little in expenses and often had to pay 2 (or even at one time 3) lots of poll tax. Those that contracted close to home were probably taking the p**s and were often really employees, those that genuinely worked away from home, changed jobs regularly and commuted long distance at weekends (for the same money) were genuinely disadvantaged by IR35.
In the mean time MP's got all sorts of expenses, £20K living away from home allowance (tax free) and double the standard rate for car journeys.
All IR35 has meant is umbrella companies (taking a fee so more cost to all) or clever schemes to get round the rules.
Its probably cost more to run than its raised.
IR35 killed a lot of smaller company ambitions
IR35 and its ilk where the end of me operating as an IT consultant. With over 20 years of experience in the software and infrastructure market I was doing reasonably well but, faced with a choice between high accountancy bills or operating 2 jobs - one just bookkeeping to keep ahead of the beurocracy curve - I just went back to being a permie.
It was a usual Labourite policy envy those with half a brain cell and try to tax them to oblivion..