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Chancellor warned that avoiding action on IR35 is not acceptable

By: Paul Towndrow

Posted On: Mar 23rd, 2011  Under: Contractor Tax, Freelance Contractors, IR35, Sole Trader

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While it seems likely that the Chancellor will act on one of the chief recommendations of the OTS review of small business tax in his Budget today, he has received a warning form the Chartered Institute of Taxation that taking no action on IR35 would be “unacceptable.”

According to the Sunday Times, Mr Osborne is expected to announce the merger of income tax and National Insurance Contributions, a key recommendation from the OTS review.  In the long run, this is likely to remove the conditions, which led to IR35 in the first place, as NIC charges are significantly lower for self-employed individuals than for employees.

However, until the merger has been effected, the question of what to do about IR35 remains very much on the agenda, especially for many in the UK’s growing freelance contractor community.  The President of the Chartered Institute of Taxation, Andrew Hubbard, insists that the Chancellor “must be decisive on the issue of IR35.”

Mr Hubbard went on to say that the Chancellor must indicate what he intends to do about the controversial legislation.  Will he suspend it, or improve its administration?  These are two of the three options suggested by the OTS.  He has a point as NIC and income tax merger will not be achieved for several years and in the meantime, self-employed people, who in the government’s own estimations will help drive economic growth, still require the clarity and certainty which IR35 has so obviously failed to deliver.  As Mr Hubbard sharply put it, “to do nothing is simply not acceptable.”

It remains to be seen, of course, exactly what Mr Osborne will propose later today.  Many are awaiting his decision with considerable interest.

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