IR35 Abolishment – Is the end in sight?

Today the Conservative party have signaled their intention to review IR35 as part of an overall review of small business taxation – should they be elected, that is.

The freelancers’ professional body – The PCG – have been lobbying on behalf of contractors and freelancers for the abolishment of IR35 since its introduction by the then Chancellor Gordon Brown in 2000.  The initial objective of IR35 was to close a “disguised loophole”, which allowed contractors to reduce National Insurance and income tax payments by paying a low salary and dispersing profits via dividends.  Today’s announcement by the Tories is the product of ten years of lobbying by the PCG.

HMRC originally expected to raise £220m a year from additional National Insurance contributions alone, however the PCG revealed that IR35 legislation has generated only £9.2m in additional revenue in six years – just over £1.5m per year. In addition, the PCG has been involved in 1,468 IR35 investigations, of which HMRC proved additional tax was due just six times.

Mark Prisk, the shadow business minister said “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.”  Prisk believes IR35 has cost businesses £73m and he’s pledged that the new “Office of Tax Simplification” would make an IR35 review a priority.

In other Tory manifesto news, they’ve also pledged to reduce the headline corporation tax rate from 28p to 25p, and the small companies rate will be cut to 20p from the current 22p.