Simplify or stick with IR35, Osborne urged
Four contracting stalwarts last night recognised IR35 as the single biggest issue that contractors want next week’s Autumn Statement to address - either in the shape of a vow not to complicate it further or a plan to remove the “wholly unreasonable” uncertainty it creates.
The acknowledgement from an accountant, SJD Accountancy; a contracts lawyer, Egos, a tax adviser Brookson and PCG, the contractors’ trade group, is timely because it comes in the same week that the PSC committee explored the ‘pros and cons’ of suspending IR35 outright.
While none of the four contracting specialists told ContractorUK that such a respite appears to be on the cards for Dec 5th, any future suspension of IR35 would come at a cost, not least because the taxman said this week that the “Exchequer risk” posed by PSCs is £475million a year.
The view as to whether George Osborne has enough taxpayer money at his disposal to remove, simplify or pare back IR35 – or any other tax rule on the statue book – differs depending on the expert approached.
ContractorMoney, an IFA to contractors, said yesterday: “It is always difficult to predict exactly what the chancellor has in store for his Autumn Statement, though he has already warned that there will be ‘no pot of money for tax sweeteners,’ so contractors would be wise to brace themselves.”
But also speaking to CUK, Stephen Herring, head of taxation at the Institute of Directors, stated: “On balance, I think the public finances are looking a tad better since the March 2013 Budget, so the chancellor, for the first time, has a little more wiggle room, and there might be one or two high-profile but modest tax reductions.”
If the showpiece of Mr Osborne’s tax package next Thursday does concern IR35, the four contracting specialists hope it will focus on improving the legislation from the viewpoint of the worker/PSC, as HMRC’s Robin Wythes committed to this week.
“Greater certainty in relation to IR35 would be welcome,” said Roger Sinclair, legal consultant at Egos. “It is wholly unreasonable that anyone should be placed in a position of having to seek expert advice as to how the income from each contract should have to be treated.”
Pointing to contractors working in an office-holder role on behalf of end-users, PCG confirmed the need for greater certainty. In a letter to the chancellor, the group’s chair Julie Stewart wrote:
“We look forward to you promising more guidance regarding “office holders”, as we believe there is an urgent need for clarity in this area.
“Currently, it is not clear what constitutes an “office holder” creating the potential for significant uncertainty amongst businesses looking to engage with senior consultants. Although abuses of the tax system must be stopped, measures to prevent such abuse must not come at the expense of clarity for businesses.”
Turning to IR35 in the public sector, she told Mr Osborne that she hopes his Autumn Statement will “contain more complete guidance” for contractors working under the ‘off-payroll’ rules, to ensure the continued smooth delivery of services.
And although it didn’t mention IR35 in its own Autumn Statement 2013 wishlist, the IoD seems to agree, saying that, where possible, the chancellor should “simplify – and reduce the cost of – compliance” with UK tax rules.
Perhaps the institute chose not to single out IR35 this year (it has done in its previous wishlists) because history has repeatedly shown the rule not to be mentioned in the chancellor’s speech, despite often appearing in his full report.
“Unfortunately for hard-working contractors, I suspect that there will be nothing of note in the chancellor’s oral statement, as there hasn’t been in recent years,” reflected Simon Dolan, founder of SJD Accountancy.
“Moreover this year, there is a Lords committee looking into PSCs and it is due to report back no later than March 2014, so it’s unlikely that George Osborne will second guess their recommendations.”
But it is the nature of those incoming recommendations which concerns another accountant, Brookson, who says the Lords probe into PSCs is “premature,” given that the work of the IR35 Forum is still ongoing.
Referring to both the inquiry and the Autumn Statement, Brookson’s boss Martin Hesketh warned: “The flexible labour market doesn’t need more tweaks or sticking plasters to cover cracks in existing legislation; we just need better enforcement of what we have got.
“Surely this should be what the House of Lords focus on, [so as to] avoid causing further uncertainty and confusion for the freelance sector. Let’s make what we [already] have work, rather than introducing even more new legislation.”
Even if the chancellor does announce fresh legislation in the Autumn Statement – used by him last year as an opportunity to close tax loopholes – Egos’ Mr Sinclair fears that such a ‘stick’ rather than ‘carrot’ approach, will backfire.
“[For freelance contractors] I have a greater expectation of hot air [from Mr Osborne on December 5th] than [measures] of any real benefit,” said the legal expert.
“The real problem is the magnitude of the overall tax burden. The reality is that the more a government tries to collect, the more the population is likely to resist and to seek ways to minimise the impact on them; the greater the incentive to find ways around.”