Directors call for IR35 business test

A BUSINESS TEST to decide the boundary between employment and self-employment should have been prioritised in the Office of Tax Simplification's review of the tax system, business directors have said.

The OTS review recommended the abolition of the IR35 legislation, which currently stipulates the difference between employment and self-employment, or reform in its implementation. As a third option, it recommended a business test to be introduced, which would incorporate a range of simple tests, such as a salary level as a percentage of overall turnover. However, the report said there had been some "very strong views against" the idea of the test.

But the Institute of Directors said that a business test was the most viable option. A statement said: "We can all support clarity: it should be easy for each person to work out his or her tax status. We are therefore disappointed that a new business test is only a third option for short-term change to IR35, rather than being the lead option."

The PCG, which is the UK's biggest organisation for contractors, said that abolition was the best policy.

Chris Bryce, PCG chairman and member of the OTS consultative committee, said: "We have been telling the government and all interested parties that IR35 was not fit for purpose. We now call on the chancellor to opt to suspend IR35 with the view of permanent abolition.

"This would remove a shadow that has hung over the UK freelance community for over a decade and be a massive vote of confidence in this skilled and flexible community."