Will the new coalition government abolish IR35 rules?

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Will the new coalition government abolish IR35 rules?

Posted May 13, 2010

20th May Update - the coalition has confirmed its intentions to review IR35 following publication of its "programme for government".

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Many contractors will be wondering how the new coalition Government will act on IR35 over the coming months and years.

Fortunately, both coalition parties have already indicated their intentions to review the IR35 rules, although it is unlikely that IR35 can simply be "abolished", as it is not an isolated piece of tax legislation.

In March 2009, the Lib Dems had already made their views clear after Lorely Birt MP raised an Early Day Motion calling for IR35 to be abolished. The EDM was subsequently signed by 121 MPs, including Vincent Cable and Chris Huhne.

In the recent Lib Dem brochure - 'Enterprise in a fair society' - the party once again made their intentions clear following success at the 2010 election:

"We will also review the IR35 legislation and seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed or restrict labour market flexibility."

The Tories have already announced that they would undertake a complete review of small business tax, including IR35, as this extract from the 2010 manifesto shows:

"In our first Budget, we will set out a five year road map for the direction of business tax reform, providing greater certainty and stability to businesses. We will create an independent Office of Tax Simplification to review and suggest reforms to the tax system and its effect on small business, including IR35."

On March 31st, Mark Prisk (then Shadow Business Minister) also made an announcement on the Conservative website:

"IR35 has especially proved to over-complex, uncertain and often unfair.

"IR35 has cost business £73 million over 10 years but it has barely raised revenue for the Treasury.

"This is why a Conservative Government would mandate the independent Office of Tax Simplification to undertake a fundamental review of current arrangements with the aim of providing a clearer, lasting and fairer tax regime".

Many in the contracting industry will be watching developments with interest... including service providers who have set up flourishing businesses on the back of IR35!

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