Inland Revenue adjusts IR35 guidelines

IR35 campaigners have welcomed changes made by the Inland Revenue in the way it assesses whether someone is genuinely self-employed -- a move that could mark a thawing in relations between IT contractors and the tax inspectors.

The Professional Contractors Group (PCG), which recently lost both a high court challenge to IR35 and a subsequent appeal, said that the Inland Revenue's actions were a positive step.

The changes have been made to guidebooks that are issued to Revenue staff. They address some of the criticisms that have been made about IR35, and the way it was being enforced. Although the changes follow discussions between the PCG and the Inland Revenue, the Revenue insists that such changes are made regularly.

One key change means that contractors will not be caught by IR35 just because they don't provide their own equipment. The PCG, which has repeatedly said that the Revenue's rules were not compatible with today's "knowledge economy", has been particularly scathing of this criteria. Chief among the problems, said the PCG, was the fact that for security reasons some freelance programmers are not even allowed to plug their own laptops into a company's network.

The length of time that a contract runs for will no longer be a factor in deciding whether or not someone is subject to IR35, and the Inland Revenue will now look more favourably on situations where people claim to be self-employed even though they only have a single client.

Jane Akshar, chair of the PCG, said that the changes were a step in the right direction.

"While we have differing views on the rights and wrongs of the legislation, it is a fact of life for thousands of contractors and these changes will go some way to help bring some clarification to what has been a very unclear situation. We will continue to work with the Revenue on behalf of our members," said Akshar in a statement.

In response, the Inland Revenue indicated that it welcomed the PCG's positive comments. "We are constantly looking for ways to improve the clarity of our work, for the benefit of both our staff and taxpayers," an Inland Revenue spokeswoman told ZDNet UK.

IR35 was introduced in 1999, and was intended to clamp down on a tax scam where people declared themselves to be self-employed while effectively operating as a full-time member of staff -- thus paying tax at a lower rate and saving their employer from paying for some benefits.

Critics of IR35 claim that it will drive thousands of IT contractors away from Britain, because they will be unfairly caught by the tax.

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