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| CURRENT SECTION :: IR35 / IR591 | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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The Federation of Small Businesses has urged the Treasury to revamp a confusing tax regime that is sending out “mixed messages” about the government’s approach to micro-businesses. Neil Hamper, chairman of the tax committee, says steps need to be taken to fix major flaws in the system so enterprise has more of an incentive. He said much tax confusion has arisen from Gordon Brown’s claim that enterprises in Britain were the “engine room” of the economy, despite later telling “his minions in the Revenue, to cut them down to size.” Mr Hamper’s comments come before a small business tax paper is due to be released next week, prompting groups like the FSB to urge maximum action on areas of tax affecting small business. One of the most ambiguous tax rules, IR35, is something that all business advisors and IT contractors will look out for, despite fears the Treasury will not refer to tax rules specifically. “They will waffle, but the only changes they are likely to make will be to ensure that more are brought more firmly under the net,” said Roger Sinclair, legal consultant at Egos Ltd. “Like anyone who gets a pay rise, the sad fact is that the government is now dependent on the extra income that it gets from IR35 because it is committed to spending it, and would have to replace it from another softer target if it were to get rid of IR35.” Egos said the best thing people can do is educate themselves on how to conduct their affairs so that they fall – legitimately - outside the scope of current IR35 legislation. Kate Cottrell, former IR and undefeated IR35 specialist, agrees the tax office has taken on huge sums of money, since IR35 was introduced in 1999. “We have had IR35 for over four years now and there is no doubt that significant amounts of tax have been raised as a result, although the Inland Revenue is unable to quantify amounts,” she said. Bauer & Cottrell said recent cases before the Special Commissioners did not bode well for an overhaul of small business tax or scrutiny on IR35. “Recent cases heard in the Courts and at the Special Commissioners have been won by the Revenue so there is little reason for the government to consider changes to the legislation. “We await the discussion paper and this process takes time so even if the paper contains new proposals regarding IR35, we will find ourselves in the run up to the general election.” Egos meanwhile said that any new or related tax laws will be presented with the double speak of ‘a fairer system.’ This will be “directed primarily at getting the support of the part of the population these taxes do not affect, and making it harder for those it does affect to get that part of the population onside.” Although nearly all tax advisors said they expect a non-controversial document, the politics behind the tax practices seem to make up for lost ground. “The government’s priorities are not those of the governed,” said Mr Sinclair. “Forgive my cynicism, but unless the government can be persuaded that failure to alleviate these taxes is likely to mean changes favourable to them in the ballot box, nothing will change. And even then, they will need to make up their losses from elsewhere.” He said that IR35 discourages growth, because it taxes profits even if they are not withdrawn from companies. “Those who want to change IR35 for the better could do worse than to focus on the negative impact that it has on growth, and a change which excepted from the scope of IR35 profits which are in fact kept in a company, might be a good thing and politically achievable.” Nov 26, 2004 Email this article Printer friendly page Previous Page
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