By Francesca Lagerberg

The government is going to produce a discussion paper in the autumn to 'consider the issues raised by the interaction with the tax system of definitions of income of selfemployment, and the remuneration paid to owner-managers' - or so it says in the Budget 2004 Red Book, at paragraph 5.95.

However, the Inland Revenue also appears to have suggested that the rules known as IR35 are not up for review. If this is true, it is both strange and a waste of a great opportunity.

The IR35 regime has been with us for over four years. These complex rules are based on whether a 'worker' who operates through, say, a personal service company is effectively deemed to be employed in relation to his or her end client.

This relies on extensive case law that looks at whether someone is employed or self-employed.

These status cases often depend very much on their own facts and it can be hard to draw firm conclusions. It also makes it difficult for a taxpayer to determine their true tax position. The Revenue review, therefore, seems a perfect chance to revisit IR35.

This is even more important given how the operation of IR35 has progressed. Amazingly, there are no available government statistics to help assess whether these rules have raised anything approaching the £900m they were expected to. There are also difficult technical problems with the operation of the rules, which have been highlighted by such bodies as the ICAEW's tax faculty.

The Revenue's review should be bold and expansive. It should be brave enough to tackle the politically sensitive issue of IR35, but perhaps, better still, it needs to offer some alternative solutions to the whole issue of determining employment status.

A modern tax system should not have to rely on a confusing array of cases, some of them conflicting. It is time to seek a better method for dealing with the issue of employment status and this could take the form of codifying existing rules and offering a clear series of tests to provide certainty to taxpayers.

Formal body for ongoing review
By Damian Wild

Like many government departments, Inland Revenue officials are very good at adopting the reasonable tone of voice employed by the endlessly patient. This week, they politely side-stepped the question of whether they would like to write a piece explaining why they don't believe IR35 should be reviewed as part of its forthcoming examination of SME tax issues.

We never said we would review it, ran the subtext, so how can we explain why we aren't? The logic is there alright, but there still seems to be a disconnect - and it's not hard to identify it: the Revenue believes IR35 is a good idea and in clinging to that belief remains practically in a minority of one. The Professional Contractors Group, the lobby organisation set up to campaign against IR35, has brought 450 cases to court on behalf of its members. The Revenue has only been successful in one case. Is there another area of law in which the results have been so absolute? And I dread to think how much it has cost taxpayers to fight those cases so unsuccessfully.

Two years ago, Accountancy Age published a manifesto calling for change across the profession. We called for the creation of a tax practice committee made up of experts, politicians and stakeholders who would review proposals in terms of their potential to limit administrative burdens and test compatibility with existing legislation.

A formalised body such as this, we said, could publish minutes and record its verdicts publicly, and be the vehicle for undertaking a published review of the tax system.

We weren't the first to call for such a review - and we won't be the last. Nevertheless the broad review of policy for which the UK tax system cries out looks no more likely than in 2002.

And that's why the narrowness of this Revenue examination is so disappointing. We may never have been promised the review we wanted, but it's hard to see any logic in a discussion paper on the taxation of the self-employed and owner-managed businesses that ignores IR35.