There has been a feeling of ‘at last’ amongst the contracting community following the news that IR35 will be reviewed as part of the coalition government’s review of small business taxation systems. This is to be the responsibility of the Office of Tax Simplification which is newly formed. There is a fear, however, that contractors are labouring under the misapprehension that IR35 is set to be abolished.
The newly appointed tax director at the Office of Tax Simplification, John Whiting, has been talking to Taxation magazine with the aim of correcting some of these myths which are flying about. Mr Whiting confirmed to the magazine that no decisions have been made at this juncture and they were keeping all of their options open. He did confirm, however, that the analysis of the wider taxation system will be the first step for the OTS.
This, of course, is not to suggest that there is no hope for the abolition of this contentious tax rule. Mr Whiting has acknowledged that the intermediaries legislation has been ineffective to date. He will be looking at the reasons why it did not work as expected, since its introduction was as a result of severe abuses of the previous taxation system. The fear is that these loopholes and subsequent abuse of the system would resurface if the rule was abolished without appropriate replacement legislation.
Mr Whiting has promised an all encompassing review of IR35 but contractors will have to wait until next year’s Budget for the conclusion to his analysis.