Chancellor urged to ditch IR35

The chancellor of the exchequer, Gordon Brown, has been asked to give a boost to small businesses, including IT contractors, by abolishing the IR35 tax rules.

Both the Professional Contractors Group (PCG) -- which recently lost a legal attempt to get IR35 axed -- and the Federation of Small Businesses (FSB) have urged Brown to ditch the tax in the next budget, which will be delivered on 17 April.

Both organisations believe that IR35 -- under which some self-employed workers are taxed at a higher rate because the Inland Revenue decides they are effectively full-time workers -- discriminates against small businesses and is unfair and unreasonable.

In a budget submission to the Treasury, the FSB demanded the immediate repeal of IR35, claiming that the tax was having "a devastating effect on tens of thousands of small businesses, and particularly those in the knowledge-based sector."

One reason given for the introduction of IR35 is that it combats the "Friday to Monday" syndrome. This is where someone resigns from their job, sets up as a small business and carries on doing the same work while being paid as a contractor. This benefits both the employer, because they avoid having to provide benefits such as holiday and sick pay, and also the contractor, who will pay a lower rate of tax as a business than as a full-time employee.

IR35's opponents claim that it unfairly penalises many genuine self-employed workers. The PCG has repeatedly claimed that the rules used by the Inland Revenue are inadequate for the high-tech age.

In a statement, PCG chairman Jane Akshar claimed that there was confusion over the way that IR35 would be implemented. "Four High Court judges, tens of thousands of small businesses, accountants and their representative bodies, lawyers, industry and small business groups and even Inland Revenue staff have been critical about or confused by the uncertainty of trying to operate in IR35," Akshar said.

Akshar insisted that IR35 should be abolished because it was harming the UK's small-business community. "Many of our members are closing down their small businesses and others are contemplating doing so because they cannot continue to operate in a climate where over-burdensome regulations and unclear legislation have created a miasma of uncertainty," she claimed.

The FSB, however, is not confident that the end of IR35 is nigh.

"I'm afraid the process of overturning IR35 is a long slog," an FSB spokesman told ZDNet UK News. Indicating that a change of government might be required, he added: "The Liberal Democrats have formally said they would repeal IR35 if they had the chance, and although the Conservatives are currently reviewing all their tax policies they have opposed IR35 in the past," he explained.

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