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23 Mar 2011
MUCH CRITICISED freelance tax rules will stay in place, the government has announced during today's Budget.
Known as IR35, the tax rule outlines how freelancers are treated for tax purposes - either employed or self-employed.
Further reading
The rules have been criticised as being far too complex, but rather than start again the government has introduced details to better administer IR35.
A dedicated helpline staffed by specialists will be set up, said the government today, and restrict review to high risk cases. An IR35 forum will be formed that will monitor HMRC's approach.
Anne Redston, barrister at Temple Tax Chambers, said that keeping IR35 was "disappointing".
Although she welcomed better administration of the scheme, she voiced concern that the complexity of the rules had failed to be dealt with.
"The real problem is that the definition is inherently unclear. People don't know whether they're [caught] in it or not," she said. "The problems embedded within it won't go away."
The Office of Tax Simplification recently announced a series of options for the government to take on IR35. Options provided by the OTS were: to cancel IR35 - which it warned could increase tax avoidance; or reform through simpler ways to test a person's tax status.
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Visitor comments Add your comment
Simples
There are two main failings of the tax system that result in the behavior that results in the need for IR35. Fix these failings, and IR35 is no longer needed:
1: why tax income differently depending upon the source of the income? Capital gains excluded (because of the period over which CG arises**), why should it matter to HMRC if it is Dividend income (100% dividend imputation required), rental income (after allowable deductions), Salaried income, or Interest Income etc? One of the requirements of ‘Money’ is that it is fungible. i.e., one £ is the same as the next £. So why tax it differently?
Tax all forms of income in an equitable fashion, and there is no benefit of transmuting salary to dividend income, etc.
(** ie, if a capital gain arises over a period of 10 years, it may not be equitable to tax the entire gain in the year it is crystallised, or at the rates of that year)
2. Stop that pretense that NI is not a tax on salaries. NI has the impact of making it more tax efficient to have non salary income compared to salary income.
Posted by: Peter, 23 Mar 2011 | 17:13