Research supports review of IR35

The study found that more than 50% of respondents thought IR35 was a 'big problem'. Conducted by Dr Alan Southern of the University of Liverpool management school and the Small Business Research Trust, the study supports calls for a complete review of how the taxation system is applied to small businesses.

Neil Hamper, head of taxation at the Federation of Small Businesses, said that a review was 'definitely in order'.

Last week, the Inland Revenue ruled out such a review, despite it being suggested in this year's Budget. The surprise u-turn outraged small business owners and accountants.

'The Revenue staff at grass-roots level loathe IR35. The government is once again tinkering at the edges of taxation, and small businesses are once again suffering as a result.'

Ian Durrant, director of external affairs at the Professional Contractors Group, said that most of the PCG?s members who deal with IR35 actually fall outside IR35 ð but have to jump through several hoops to prove this to the Revenue.

Around three out of five respondents said that the 19% tax on distributed profits would be a problem, supporting calls for the zero rate of corporation tax to be abolished.

Research also found that many owner-managed businesses had changed their legal status from sole trader to limited company in order to benefit from a reduced tax rate rather than, as the government envisaged, a step to growth.

Chas Roy-Chowdhury, head of taxation at ACCA, said: 'Owner-managed businesses require a simple, certain and fair tax system. At present it is none of them. The government must look at radical solutions to achieve those goals.'