Why keeping IR35 might not be such a bad thing for contractors
The government's attempt to reduce the administrative headache of the much-maligned IR35 legislation, rather than abolish it entirely, seems unlikely to make IT contractors' lives much easier in the short term. But maybe it's not such a bad thing that it's here to stay.
The decision to backtrack on scrapping IR35 shouldn't come as a huge surprise - it comes on the back of a recent report from the Office of Tax Simplification that called for it to be retained.
"In a steady-as-she-goes budget like this one, which included some bold moves like plans to merge income tax and National Insurance, any radical change to IR35 was unlikely," says Alex Henderson, tax partner at PricewaterhouseCoopers. "The Chancellor has hinted it could be abolished in the future, but it's an important source of revenue, so contractors shouldn't get their hopes up."
Instead of eradicating IR35, the government has tried to make it easier to comply. There's going to be a dedicated helpline, published case studies on what falls outside the scope of IR35, restricting reviews to 'high risk' cases and a new a forum to see how effective the new approach has been.
The more sceptical among you might suggest that actually, IR35 hasn't changed at all, and the above moves are just a token effort so that the government can say it's taken some sort of action over concerns around the legislation.
Simon Dolan, founder of specialist contractor accountancy firm SJD Accountancy, has said that he believes neither the number of prosecutions related to IR35 nor the enforcement of it will change.
But is keeping IR35 - something the Professional Contractors Group says has cause "anguish and uncertainty" among contractors for 11 years - actually such a bad thing?
As we've mentioned previously, there's a chance it could be replaced by something worse and it's abolition any time soon could cause "long term financial harm" for contractors, suggests Martin Hesketh, managing director of Brookson, an accountancy firm for contractors.
"Increased tax evasion will inevitably arise without this legislation and could easily result in the government being hurried into the wrong medium-term solution, which would create much greater problems for professional contractors and the self employed generally," he says.
