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IR35 reform 'needed for contractor tax certainty'

General News |  11/03/2011
IR35 reform 'needed for contractor tax certainty'The government must press ahead with plans to reform IR35 legislation, which affects professionals working as contractors, one employment expert has claimed.

Gerry McLaughlin of claimed that the legislation, introduced as an anti-tax avoidance measure in 1999, continues to cause problems for many individuals working as freelancers.

Contractors deemed to be working within HMRC's definition of 'employment' are unable to claim freelancer tax breaks, while the system is plagued with uncertainty.

This has resulted in numerous high-profile court cases over the last decade, over the non-payment of tax.

Soon after the general election, the Con-Lib coalition tasked the new Office of Tax Simplification with reviewing intermediaries' legislation, but it remains to be seen whether the law is changed.

Mr McLaughlin said the big problem with IR35 is that "the government threw a nail bomb at the problem rather than using a laser gun" when it introduced the rules.

"They said that they wanted to make sure that what they called 'disguised employees' were taxed at the full rate and were not able to claim for all kind of expenses that a proper business can claim," he explained.

"There had been a spate of companies laying off long-term employees on the Friday and then starting them as contractors on the Monday with the tax benefits that accrues. That was what the government wanted to stop."

But to tackle the problem, the government brought in "complex and ill-defined legislation" that caught many more contractors than intended in its net, Mr McLaughlin added.

"A contractor could be IR35 liable on one contract and not on the next. That is the problem the government is looking at," he stated.

Research conducted by the Recruitment and Employment Confederation recently found that 90 per cent of agencies operating in sectors affected by IR35 tax rules believe they are not effective and must be reformed.

'Lack of advance certainty of being in or out' and 'open to interpretation' were the two most common reasons recruiters gave for being unhappy with IR35.

Just 2.7 per cent of recruiters expressed the view that the legislation should remain in its present form, while half of all respondents called for the rules to be abolished.

Posted by Stephen Wilkinson


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