Tories Target IR35 In New UK Small Business Tax Proposals

by Robert Lee, Tax-News.com, London

04 January 2005

Opposition finance spokesman Oliver Letwin has revealed that a future Conservative government may abolish the IR35 rules as part of a revamp of the tax rules for small business.

In the latest in a series of tax policy proposals released in recent weeks aimed at cutting the UK's tax burden and simplifying its taxation system, Letwin announced that he has identified three facets of small business and self-employed taxation that will form the basis of a consultation paper on the issue.

Among the three proposals are the elimination of IRS35 legislation, which treats individual contractors working through personal service companies, predominately in the IT and engineering industry, as ‘disguised employees’ which often puts them at a major tax disadvantage compared with larger consultancies and agencies.

This option will cost the Treasury an estimated £300 million in revenues, although the Conservatives argue that its abolition may actually result in a net gain for the taxpayer by stemming the flow of consultants offering their services overseas.

The Shadow Chancellor has also earmarked the non-corporate distribution rate and Section 660 settlements legislation as possible targets for reform, and these contentious issues will also be included in the Conservative's tax reform consultation.

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