The Office of Tax Simplification’s recently published small business tax review was been warmly endorsed by a leading tax group, despite early criticism from some freelancers that it had appeared to dodge reform of IR35 legislation. Describing the IR35 section of the report as ‘fair and balanced’, the Deputy President of the Chartered Institute of Taxation (CIOT), Anthony Thomas, praised the review’s ‘constructive suggestions’.
The issues surrounding IR35, he explained, amounted to an ‘almost intractable problem’ but the report rightly recognises that taxation is neither the main nor the only driver behind self-employment through personal services companies or other arrangements. A tax-only solution would therefore not be the right answer, he added, although he believes the proposed new business test has much merit. If it can be formulated properly, Mr Thomas continued, “it could act as a very effective filter which would mean that a whole swathe of people would not have the worry of whether IR35 would apply to them or not.”
Amongst other proposals welcomed by Mr Thomas was the simplified tax scheme for small businesses. In the past, Governments have resorted to a ‘sticking plaster’ approach to the issue, whereas a thorough review was necessary. ‘Hasty and ephemeral changes’ to tax policy have driven many small firms to make distorted commercial decisions and the simplified tax scheme for small businesses will do much to redress this problem, leading to much better relations between them and HMRC.
Workers and engagers should, in a modern flexible labour market, be free to form the contractual relationships of their choice, without having them ‘second-guessed’ because the tax consequences differ from those of another possible arrangement, he added.