The new coalition government has confirmed that they will review the contentious IR35 tax rule. The Conservative Party had pledged to review tax systems in their manifesto and the news that such a review is top of the agenda for the coalition government will be welcome news for contractors.

A 20-point plan has been published with a focus on business and enterprise. The review of IR35 is the fourth point on this list although the review will be contained within a wider review of taxation for small businesses. The agreement states an intention to “seek to replace” the tax rule “with simpler measures”. The aim of the review is to introduce measures which “prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility.”

Despite pledging this review no time-scale has actually been given by the government. However, contractors’ group PCG have welcomed this news. John Brazier, managing director, commented: “Just look at the figures; they show that of the circa 1,500 IR35 cases PCG was involved with, HMRC has proved additional tax was owed in around 10.”

The group also confirmed they have been in contact with the new government with group chairman Chris Bryce discussing the issue of IR35 with the front bench teams of the Conservatives and Lib Dems.

Tax experts at Freelance World told Contractor UK that there will need to be open communication between Whitehall and the contracting industry. Their compliance advisor, Nick Stevenson, said that Freelance World “welcomes the review of IR35, but urges the government to seek the view of the contracting industry prior to…offering an answer to this problematic piece of legislation.”

He continued: “It was clear from the ‘False Self-Employment in the Construction Industry’ consultation document, that the views and challenges of the construction industry were not really considered prior to offering a solution. This proposed legislation has now been put on the back-burner, just like so many others.”

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