Coalition will 'seek to replace' IR35

IR35 took a step closer to the history books as the new Coalition Government said that it would seek to replace it.

The Conservatives have previously committed to review IR35 as part of a wider exercise into small businesses taxation, and the LibDems have gone further than that by expressing a desire to replace it.

In the Coalition's full programme for Government, published yesterday (May 20), the Government declares it will:

"Review IR35 as part of a wholesale review of all small business taxation, and seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self employed, or restrict labour market flexibility."

This is a direct lift from the LibDem's 'Enterprise in a Fair Society' document, which was produced before the election. The Coalition's commitment appears as the fourth of 20 priorities for improving the UK's ability to do business.

Priority

The move was welcomed by freelancer group, the PCG. John Brazier, Managing Director of PCG said: "We are delighted that the new Coalition Government made this commitment to review IR35 as a priority only days after taking power.

"For the last 10 years PCG has campaigned for honesty and fairness when dealing with the UK's 1.4 million contractors and freelance workers. With the end of the iniquitous IR35 we have the opportunity to achieve fairness.

"PCG has led the way in seeking the abolition of IR35 on behalf of our members. It has caused great heartache to many people. The cost in distress has been high, but the revenue for HMRC has been minimal.

"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.

"Despite repeated Freedom of Information Act requests and Parliamentary Questions the Revenue refused to indicate the cost of operating IR35. As I said PCG believes IR35 brought in a minuscule sum, if any, for the Revenue."

Wider issues

The wider issues in the coalition agreement were also given a resounding thumbs up from small business group, the Forum of Private Business. Its initial impression is that thousands of smaller businesses could benefit from many of the measures outlined in the document, including moves to cut red tape, impose 'sunset clauses' on regulations and review employment law.

Additionally, the coalition Government's stated aim of making small business rate relief automatic, simplifying small business taxation and helping the UK's tourism industry are all positive steps which have been previously called for by small business groups.

Forum Head of Policy Matthew Goodman said: "I'm sure this document will come as a breath of fresh air to many small business owners. In many ways, it reads like a 'wish list' of things the Forum has been demanding for several years.

"The regulatory burden imposed on business frequently emerges as one of the main problems facing SMEs, so the agreement to introduce a 'one in, one out' rule, together with sunset clauses to kill off outdated legislation, will hopefully go some way to tackling this huge issue.

"We're also encouraged by the coalition's pledge to evaluate the fairness of employment legislation, and its impact on Britain's competitiveness. Many small business owners believe employment law is grossly skewed in favour of the employee – the need for a more fair and balanced approach is something the Forum has repeatedly highlighted.

"However, the challenge now is for the Government to translate these intentions into real, practical changes to the business environment, without simply creating more state bureaucracy and unnecessary compliance costs at a time when many small businesses are still struggling.

"And while the coalition's promises to simplify and reduce some of the taxes affecting small businesses are of course to be welcomed, business owners will also be anxious to see that the June 22 Budget does not contain any nasty surprises."