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IR35 remains but will new business tests be introduced?

By: Paul Towndrow

Posted On: Mar 24th, 2011  Under: Contractor Tax, Freelance Contractors, HMRC, IR35, Contractor Limited Company, PCG

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Well, it’s official - IR35, yesterday’s Budget documents reveal, will remain in place but will be subject to improved administration, in keeping with one of the three options contained in the OTS small business tax review.

A new dedicated helpline staffed by specialists will be set up to assist any freelance contractor with uncertainties about IR35 and new guidance will be issued clarifying which cases HMRC should consider beyond the scope of the legislation.  Reviews of compliance activity by HMRC will be restricted to high-risk cases only and a new IR35 Forum will monitor the Revenue’s tighter approach.

The freelancer organisation PCG, which actively participated in the OTS review, believes that the business tests described briefly in its report can still provide a workable option in the new regime.  Commenting on the Chancellor’s decision, PCG Managing Director John Brazier said that it reflected the Government’s acceptance that HMRC’s administration of IR35 over the last 11 years had been “far from satisfactory.”

He supported the Government’s decision to implement measures ensuring that HMRC will improve its administration, and added that the PCG will continue to play a “key part” in the process.  His organisation remains committed to excluding “all legitimate freelancers from the ongoing threat of IR35 investigation.”

Mr Brazier added the introduction of Business Tests would offer the freelance contractor community the clarity and certainty it deserves.

During its time on the OTS consultative committee, the PCG (in partnership with Ernst and Young) submitted a series of binary tests, which were designed to block the ‘scatter gun effect’ of IR35 and provide freelancers and small business’s with clarity about their tax position.

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