Tories to scrap IR35?

[Pistachio]

An interview on Contractor Calculator has been popping up an awful lot (great exposure) where they stated that the Tories would possibly scrap IR35 if they were to get into government.

As you can imagine, this has been all over the internet like a cheap suit with people stating that IR35 will be scrapped by the Tories. But be warned....

Warning ! Do Not Be Misled - The Tories did not say they would scrap IR35
July 2nd, 2009 · No Comments

Professional Contractors and Freelancers naturally get very excited at any prospect of IR35 being removed from the statute books.

Recently Twitter and some the the Contractor Forums have been alive with speculation that the Tories have said they will scrap IR35.

Many of the comments have pointed to the excellent Contractor Calculator article where Dave Chaplin interviewed Jonathan Djanogly, Shadow Minister for Corporate Governance and Solicitor General.

Please do not be misled by any other articles that are arround on the internet saying “Tories will scrap IR35″ . It is just not the case.

According to Contractor Calculator what Mr Djanogly said was:-

IR35 will be reviewed and amended or replaced by a Conservative government

We have to ask whether we should simply scrap IR35 and return to pre-2000 conditions, or whether we should amend the legislation. We are aware that there will be unintended consequences if IR35 is simply scrapped, with nothing to replace it.

Back in August 2007 the Conservative Party Economic Competitveness Group led by John Redwood submitted their report to the Shadow Cabinet that said on page 61

19. We propose scrapping the IR35 tax on providers of personal services.

But this was a policy group that made a suggestion to the Shadow Cabinet at the time, it is not Conservative Policy at all.

ContractorUK also posted an article in June that described several forum member’s experience with Conservatives not supporting the Early Day Motion to scrap IR35

Back in 2001 the story was a little different. Pinsent Masons reported that the Conservatives would scrap IR35 - but then it was only a year old !

The current quotations from David Djanogly are what you may want to rely on as the “conservative policy”, as far as can be identified at the moment, and nothing leads me to believe they are committed to scrapping IR35 at all.

A search on the Conservative Party website reveals 2 hits , neither of which are policy articles. A search on expenses for instance reveals 180o hits. It does not give me much confidence that there is any real policy here on IR35.

[Bel]

This announcement is old hat, to be honest - not news at all, although David Chaplins elaborations are to be congratulated.

The situation is now, as it's been for some time now. The Tories have promised to review it. Not amend it, or change it or even scrap it. I have spoken about this with Mark Prist.

The Tories will tell us anything at the moment, to get the contractor vote.

The truth is this: the economy is in a mess and taxes are likely to go up not go down - even under the Tories. There are far more pressing concerns in any government's agenda in this current ecnomic climate than worrying about the tax needs of a very small, and seemingly insignificant section of the SME community. Yes, they might change or amend or even scrap IR35 - eventually....Let's hope they do. But a detailed review could take years, not months to complete, whilst they weigh up all the alternatives - and even then it may not amount to much. But don't expect anything new within the first few years of office if at all - otherwise you'll be on a hiding for nothing. It's also worth remembering that the mood of the electorate is to curb any kind of tax avoidance and expense abuses....not encourage them. That's why the MPs are in such a mess at the moment.

The best possible prediction I would offer is this: think years ahead before you can relax about IR35, not the day after the next election, even if they do make some announcement about it. Assuming, of course, the Tories do win the next general election, which I suspect is likely the way the wind is blowing at the moment.

...but also remember the famous quotation from Harold Wilson...."a week is a long time in politics..."

...and frankly, anything could happen between now and the election.

[Malvolio]

The Tories are not saying anything about specific taxation changes, for what ought to be totally obvious reasons. There is a dialogue going on with them concerning IR35, as no doubt there is with a lot of other things. And while NL, thanks to Dawn, have wedded the idea of IR35 to greedy tax-dodging IT contractors (not any other kind, mark you, just IT ones) and are pursuing that chimera, there is a legitimate case for something like IR35 provided it doesn't impact people who are not in its scope.

The aim is to get IR35 dumped. It may be replaced by something to penalise Friday-to-Monday, but the plan is to ensure it doesn't get replaced by something that affects anyone HMRC think it might affect. We've already shown it can't possibly be a net earner for the Treasury, after all.

MEanwhile, let's just chill. Even if we do get the Tories to agree to scrap it unconditionally, and that remains a possibility, you won't hear about it until well into the next election at the earliest for equally obvious reasons.

[Bel]

Originally Posted by Malvolio

(a) The aim is to get IR35 dumped. It may be replaced by something to penalise Friday-to-Monday, but the plan is to ensure it doesn't get replaced by something that affects anyone HMRC think it might affect.

(b) We've already shown it can't possibly be a net earner for the Treasury, after all.

(a) I'm not sure what you are getting out here..

(b) the PCG haven't proven their case at all.

I think it's a bad idea to raise peoples' hopes without any evidence to go on.

[Pistachio]

Originally Posted by Bel

The Tories will tell us anything at the moment, to get the contractor vote.

That's pretty much the way I've read all of this.

[Malvolio]

Originally Posted by Bel

(a) I'm not sure what you are getting out here..

(b) the PCG haven't proven their case at all.

I think it's a bad idea to raise peoples' hopes without any evidence to go on.

(a) Sorry, I thought you were up to speed on these issues. IR35 was mooted originally to prevent the Friday-to-Monday syndrome of an employee switching to being a freelance contractor doing his old job. Primarola made the case that in fact freelancers were incorporating simply to avoid paying tax - notwithstanding the contstraints of S134c (or S44-7 as it now is) - and decided to use IR35 as the tool to correct that utterly erroneous situation. There is still a need to prevent employers sacking workers and re-instating them as contractors to avoid employment rights costs like redundancy and holiday pay, but there is no way that should apply to the genuine freelance worker. Therefore IR35 can be retained but only if it is correcly addressed to the very few relevant cases and not all 1.4 million freelancers

(b) £9.2m direct income since it became law, against a projected (in a written answer you can find in Hansard) £220m in additional NICs per annum . Agreed we don't know how much is being paid unnecessarily by people who have been scared of falling foul of IR35. While HMRC are refusing to tell us that, using the number of umbrella users, the average rates and the difference between the inside and outside IR35 marginal tax rates it can be estimated at around £450m in PAYE and NICs in total. In the overall scheme of things, given the problems it causes, that is a pitiful amount. No it's not absolute proof, but only NL believe it a tax worthwhile continuing.

[Howzat]

Originally Posted by Pistachio

An interview on Contractor Calculator has been popping up an awful lot (great exposure) where they stated that the Tories would possibly scrap IR35 if they were to get into government.

As you can imagine, this has been all over the internet like a cheap suit with people stating that IR35 will be scrapped by the Tories. But be warned....

Warning ! Do Not Be Misled - The Tories did not say they would scrap IR35
July 2nd, 2009 · No Comments

Professional Contractors and Freelancers naturally get very excited at any prospect of IR35 being removed from the statute books.

Recently Twitter and some the the Contractor Forums have been alive with speculation that the Tories have said they will scrap IR35.

Many of the comments have pointed to the excellent Contractor Calculator article where Dave Chaplin interviewed Jonathan Djanogly, Shadow Minister for Corporate Governance and Solicitor General.

Please do not be misled by any other articles that are arround on the internet saying “Tories will scrap IR35″ . It is just not the case.

According to Contractor Calculator what Mr Djanogly said was:-

IR35 will be reviewed and amended or replaced by a Conservative government

We have to ask whether we should simply scrap IR35 and return to pre-2000 conditions, or whether we should amend the legislation. We are aware that there will be unintended consequences if IR35 is simply scrapped, with nothing to replace it.

Back in August 2007 the Conservative Party Economic Competitveness Group led by John Redwood submitted their report to the Shadow Cabinet that said on page 61

19. We propose scrapping the IR35 tax on providers of personal services.

But this was a policy group that made a suggestion to the Shadow Cabinet at the time, it is not Conservative Policy at all.

ContractorUK also posted an article in June that described several forum member’s experience with Conservatives not supporting the Early Day Motion to scrap IR35

Back in 2001 the story was a little different. Pinsent Masons reported that the Conservatives would scrap IR35 - but then it was only a year old !

The current quotations from David Djanogly are what you may want to rely on as the “conservative policy”, as far as can be identified at the moment, and nothing leads me to believe they are committed to scrapping IR35 at all.

A search on the Conservative Party website reveals 2 hits , neither of which are policy articles. A search on expenses for instance reveals 180o hits. It does not give me much confidence that there is any real policy here on IR35.

If they did scrap IR35, what would they replace it with? Surely they would simply implement some other form of employed / not self employed legislation but possibly execute it much better than Labour have done with IR35...

[Malvolio]

Try reading my earlier answer. IR35 has a place, but only a very narrow one. There is no reason to suppose they will aim to tax a small, specific section of the UK's companies differently to any other.

[Beefy198]

I still maintain that during the current economic situation contractors will find it difficult to get a legislation change that, in effect, reduces their tax bill. Like it or not we're not always that popular with the public.

[Bel]

Originally Posted by Malvolio

(a) Sorry, I thought you were up to speed on these issues. IR35 was mooted originally to prevent the Friday-to-Monday syndrome of an employee switching to being a freelance contractor doing his old job. Primarola made the case that in fact freelancers were incorporating simply to avoid paying tax - notwithstanding the contstraints of S134c (or S44-7 as it now is) - and decided to use IR35 as the tool to correct that utterly erroneous situation. There is still a need to prevent employers sacking workers and re-instating them as contractors to avoid employment rights costs like redundancy and holiday pay, but there is no way that should apply to the genuine freelance worker. Therefore IR35 can be retained but only if it is correcly addressed to the very few relevant cases and not all 1.4 million freelancers

(b) £9.2m direct income since it became law, against a projected (in a written answer you can find in Hansard) £220m in additional NICs per annum . Agreed we don't know how much is being paid unnecessarily by people who have been scared of falling foul of IR35. While HMRC are refusing to tell us that, using the number of umbrella users, the average rates and the difference between the inside and outside IR35 marginal tax rates it can be estimated at around £450m in PAYE and NICs in total. In the overall scheme of things, given the problems it causes, that is a pitiful amount. No it's not absolute proof, but only NL believe it a tax worthwhile continuing.

I am well aware of these issues. You should know that by now. It was your inability to make your point clearly, I was getting at.

I can't see your point at all on 'taxing a small proportion of the business community' differently than any other. It was the conservatives that did initially propose a kind of IR35 tax - but it was shelved.

I disagree with your last point too. You say that it is only NL that believe it is a tax worthile continuing. With a 'review' in the pipeline, that doesn't reassure me that the Tories won't feel the same way.


Just one other thing... what is the PCG's official stance on repealing IR35? Are they proposing a third-way tax alternative or are they recommending and discussing your approach with relevant influential parties - that it should only apply to ex-employees of hiring organisations?

It would be helpful to know.