Abolition of IR35 back on Tory agenda

The Conservatives are considering abolishing IR35 and changing Section 660 - the so-called married couple's business tax - as part of a package to cut taxes on small businesses by more than £500 million a year.

In recent years, the Tories have stopped short of signing up to the abolition of IR35, preferring to say that the situation would be reviewed. However, in what can be seen as a shift in policy, the prospect of the abolition of IR35 as a manifesto commitment is back on the agenda.

Three tax cuts

The Daily Telegraph reports that Shadow Chancellor, Oliver Letwin, has identified three tax cuts he would like to implement for small firms or self-employed workers.

The details will be expanded on in the Tories' consultation paper on taxation, the latest in a series of papers on specific aspects of taxation.

Three proposals

The three proposals are:

• abolishing IR35, at a cost reported to be of up to £300 million;
  
• abolishing the non-corporate distribution rate, at a cost of up to £340 million;
  
• changing settlement legislation (section 660) for husband-and-wife businesses.

The consultation documents are not political commitments at this stage, but are described as 'a menu of options' from which the party will choose.

IR35

Figures on the tax-take from IR35 are sketchy although some reports put it at £300 million. However, the Tories think IR35 imposes unnecessary complexities and burdens on business and believe that abolishing it could actually save money for the taxpayer as the total tax yield could actually go up as freelancers who left the country decided to return.