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Business groups have responded positively to the launch of the Office of Tax Simplification. One of its tasks will be to review IR35.

The OTS is made up of independent experts - its task is to make recommendations to the Coalition Government on how best to simplify the tax system.

The Conservatives pledged to create the OTS two years ago, and repeated its pledge to create the new body during the Emergency Budget.

The OTS has been tasked with reviewing IR35 "as a priority", and will report to the Chancellor before Byudget 2011.

Contractors' group delighted

The Professional Contractors Group (PCG) welcomed the launch. MD of the Group, John Brazier, said:

"We are delighted that the Government has now set up this vital office and that they have already set out the terms of reference for a Small Business Tax Simplification Review, including IR35. The fact that IR35 has been highlighted as a priority is good news. We will be working to ensure that this iniquitous tax will go and that all freelancers and small businesses will be able to operate within a fairer and more transparent tax system."

The PCG was originally formed in response to IR35, and will be submitting evidence to the review in due course.

Concern over tax reliefs for contractors

The Freelancer & Contractor Services Association (FCSA) has given the OTS launch a "cautious welcome". The Association has long argued that the UK tax system needs to be simplified, especially for contractors and freelancers.

However, the FCSA says that it has concerns about the Government's announcement on removing tax reliefs.

"At the moment freelancers and contractors receive a number of tax reliefs (for instance on travel expenses and subsistence) to reflect the risks of the flexible workforce. Any moves by the Government to undermine the flexible workforce market, which UK plc is relying on more and more in these difficult times, will backfire on the UK economy."

Need for consistency

The Association of Chartered Certified Accountants (ACCA) has urged the Government to "think small first" and says that the key for the success is to ensure its recommendations are consistent.

The ACCA is calling for more clarity on several areas of legislation - the PAYE system, Income Tax bands, the Flat Rate VAT Scheme, employee benefits system, and deductions from business tax profits.

Chas Roy-Chowdhury, Head of Taxation, commented:

"Small businesses are the lifeblood of the UK economy but they have been trapped by the overly complicated taxation system.

"We have been calling for greater simplification and transparency in the UK tax system for many years and we are delighted the Treasury has recognised the need to streamline the system though the establishment of the Office of Tax Simplification and we hope this commitment continues."