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Election 2001: Fight isn't over for IR35

Liberal Democrats hope to make IR35 less draconian, and will keep raising the issue in debates
Written by Graeme Wearden, Contributor

The Liberal Democrats will keep up the fight against the government's controversial IR35 tax after the general election, and are hoping to change some of its most unpopular aspects.

A court ruling last month means that IR35, which treats self-employed contractors as employees for tax purposes, is almost certainly here to stay. Both major opposition parties opposed the tax which came into force in April 2000, and the Liberal Democrats are planning to continue to battle against what they believe is a draconian measure.

"There's no doubt that IR35 is a mistake that will do very serious damage to the IT industry. In an ideal world we could scrap it, but that's no longer possible," Vincent Cable, trade and industry spokesman for the Liberal Democrats, told ZDNet.

Opponents of IR35 claim that it will drive many IT professionals overseas, damaging the UK's attempts to become a leader in technology and e-commerce.

"Speaking to my constituents in Twickenham I know that lots of people are very angry. Some of them are moving to other fields of employment, and in a few cases they are moving overseas," said Cable, who thinks claims of "thousands of IT workers" leaving the UK are overstated.

An attempt by the Professional Contractors Group (PCG) to have IR35 thrown out failed at the high court last month. However, Judge Burton did criticise the Inland Revenue's implementation of the tax. Under IR35, the Revenue can force a contractor to pay National Insurance contributions and a higher rate of tax if it believes the contractor was effectively a full-time employee. The government claims that IR35 will stop the "Friday-to-Monday" syndrome, a tax scam in which someone resigns from a full-time job but carries on doing the same work, but as a contractor -- meaning they earn more as they are liable for less tax.

Under IR35, consultants can put aside five percent of their income to cover costs such as new equipment and training. Increasing the size of this allowance will be a priority for the Lib Dems after 7 June. "The five percent allowance for training costs is clearly hopelessly inadequate," said Cable. "Battling for this to be increased is the most productive thing we can do, because if Labour are returned to power there will be little scope for changing IR35."

Despite the polls promising a big win for Labour, Cable insists that the fight against IR35 isn't over. "I'm prepared to keep taking all-party groups of MPs to meet ministers, and to keep asking questions in the House of Commons," he said.

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