TAX NEWS - June 2010

IR35 tax avoidance legislation to be scrapped - UK Tax

An unpopular regulation designed to clamp down on tax avoidance measures is likely to be scrapped.

Small business Minister Mark Prisk says the 'IR35' legislation, which polices the income generated by individuals selling services under the auspices of a small company, will form part of a review of small-business legislation as the coalition seeks to reduce red tape and simplify the tax system.

"We want to make sure that we could undertake a comprehensive review of small business taxation in a way that makes the need for the current IR35 legislation redundant," he says. "But we want to make sure whatever we change is a lasting settlement. One of the problems with IR35 is that it's a constantly changing set of rules."

The review, which will affect 1.4 million freelancers, is expected to be launched this summer.

Francesca Lagerberg, head of tax at Grant Thornton, says: "The IR35 rules have created problems for over a decade for entrepreneurs using personal service companies and have led to hundreds of tax cases, many of which have been lost by HM Revenue & Customs."

Tina Riches, a director at the Chartered Institute of Taxation, added: "Small business tax has long been played on a very uneven pitch. A new groundsman could have a field day in making this a fair competition."

HM Revenue & Customs is also set to explore how the 'pay as you earn' tax collection system could be streamlined to save money.