Shadow trade and industry secretary David Heathcoat-Amory revealed yesterday that the party was changing its policy on IR35 to a pledge to repeal the tax measure affecting contractors.
The policy change comes just months before a general election, expected on 3 May, with some hope that a new direction will win votes. Up until yesterday, the Tories had only committed themselves to reviewing the policy.
Heathcoat-Amory confessed that the Tories previous review policy was ‘a bit weak’ and, after consultation with industry bodies such as the Professional Contractors Group, and costing a new approach, decided that the Tories would reverse the IR35 legislation.
He said a Tory government would consult contractors, but there would be fresh measures to stop abuse of service companies for tax avoidance purposes.
The Tories would look at a new set of tests for contracts to determine whether the contractor’s relationship with the client is one which would otherwise be an employer/employee pairing. If that is the case Heathcoat-Amory said there will action to stop it.
Under the revised rules, the tax take from IR35 – which the Tories claimed was Pounds 400m – would be significantly reduced.
They made a ‘cautious’ costing of Pounds 150m, but some industry sources believe there would be no cost resulting from a repeal because so many contractors would return to the UK to work and pay taxes.
Heathcoat-Amory told AccountancyAge.com: ‘There are a huge number of people – around 100,000 – directly affected, and judging by the emails and letters we have been receiving they are very upset and would never vote Labour again.’
He said a new Tory government would take prompt action if elected because ‘damage is being done’.
But Treasury chief secretary Andrew Smith said the Tories had got their figures wrong.
‘IR35 raised Pounds 900m last year, not Pounds 400m, and it would cost at least Pounds 900m to abolish it,’ he told the Financial Times.
The PCG has sought judicial action against IR35 and a High Court review will begin on 12 March.
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