Tax unit to finalise IR35’s successor ‘post-Budget’

Contractors must wait a bit longer to meet the ‘son of IR35,’ as the successor to the “burdensome” legislation will need its proposals “bottoming out” well after next month’s Budget, Contractor UK has learnt.

John Whiting, director of the Office of Tax Simplification, yesterday confirmed that the OTS review of small business taxation, including IR35, would make its “initial” report in time for the chancellor’s statement on March 23rd.

But asked if the office’s recommendations on IR35’s successor would be timetabled, Mr Whiting told CUK that work on “bottoming out [its] implications will continue post-Budget, ahead of our final report [in the summer].” 

“On IR35, we want to come up with recommendations for improving what is generally agreed to be an administratively burdensome regime,” Mr Whiting continued. “Post-Budget we will be following up…towards a final report in the summer.”

This timescale fits with the accounting and tax industry’s optimal set of calculations. Mark Lee, of the Tax Advice Network, recently said he “expects,” and wants, the “son of IR35” to face consultation first.

In the contracting market, advisers shown Mr Whiting’s latest comments said the former PWC partner, and Chartered Institute of Taxation policy director, was right to factor in consulting on IR35’s replacement.

In fact, if the government wants to approach IR35’s successor properly, ‘not putting anything in place of IR35 that has an immediate effect’ from March 23rd “make[s] perfect sense,” to Paul Mason, contracts manager at Abbey Tax.

Lawyers at Accountax Consulting, which was recently successful at defending a contractor against IR35, agreed.

Director Matt Boddington blasted: “IR35 was the most ill-thought out piece of tax legislation enacted by the previous government, and epitomised the dangers of inadequate consultation. I hope the OTS will not fall into the same trap and rush headlong into equally poorly considered provisions.”

As well as recognising consultation, another contractor advisor said Mr Whiting’s comments were proof enough that IR35 is to remain in force for many tax quarters to come, despite hopes dating back to April that the coalition government is poised to scrap it outright.

“I think that the OTS will finish their report towards the end of this year,” said Simon Dolan, of contractor tax firm SJD Accountancy. “Then they’ll announce any proposed changes [to IR35] in the Pre-Budget report 2012, with a view to implementing [them] in the Budget 2013.”

Seb Maley, freelance services manager at Qdos Consulting, envisions a similar, long term timetable: “There may be a consultation document this May or June with a view to introducing legislation in Budget 2012. If this is the case then there could well be an announcement in the Autumn of forthcoming legislation.”

When asked about his tax simplification team’s incoming findings on IR35, and the Family Business Tax, Mr Whiting conceded it was “likely” that some of their recommendations would indeed be “longer term”.    

“The government is committed to full consultation on changes,” he stated. “So if, say, we recommend a significant change to the IR35 rules, then it will presumably be a while for debate before the change comes through into law.”

Yet the office says it won’t shy away from tabling “short-term” actions (promised as equally as likely) – even on IR35 where “it may be that any administrative improvements can be effected more quickly.” 

Although this will be welcomed by some IR35 critics, Mr Whiting’s example is unlikely to silence calls for the OTS to go further by forgetting “alternative legislative approaches” and by calling for its repeal instead, without any substitute measures.

Fresh from IR35-talk at what he called “helpful” OTS road-shows, he reflected: “We are well aware of these opinions, and we will be making our recommendations in the report. Clearly, we aren’t going to be able to meet everyone’s wishes”.

Wednesday 16th February 2011