IR35 Review Announced

Chancellor George Osborne has announced the UK tax law is to be simplified, he said: “The “Spaghetti bowl” of UK tax law is to be simplified to cut the burden on business and attracting foreign investment.”

However recommendations for any changes to the IR35 code will not be put forward until next year’s budget.

Mr Osborne is in the process of setting up an Office for Tax Simplification (OTS) which will be headed up by Conservative MP and Treasury minister Michael Jack as chairman of the body and its director will be John Whiting, formerly of PriceWaterhouseCoopers, who is tax director at the Chartered Institute of Taxation. Neither will be paid for these positions and will report to the exchequer secretary David Gauke, or to the Chancellor, George Osborne, who has also confirmed the OTS will be paid for out of existing budgets.

The OTS’s remit will cover UK taxes and duties administered by HM Revenue and Customs which includes the controversial IR35. The new body will conduct a review into finding ways to simplify the tax system for small businesses, part of which will review the IR35 code.

John Whiting, tax director of the newly formed OTS has said that measures to replace IR35 may need to consider a contractor’s income sources, similar to the Australian ’80-20’ rule.

He said, “IR35 is a complex area – so I can’t promise immediate change or abolition. If (either were) easy to do, they would have been done already. We may have to go for more of the ‘80/20’ approach but let’s see where we get to. What I want….is a thoroughgoing review – not just another bit of sticking plaster.”

For consideration, Mr Whiting wants to establish why IR35 was brought in; whether the “problem” it addressed remains and, if so, how to respond to it better.

Mr Whiting, added: “HM Revenue and Customs are doing some initial work on IR35, but our target is to come up with recommendations in time for the budget next year.”

This follows Mr Osborne’s first budget last month where he set out plans to reduce corporation tax by 28% to 24% over 4 years in an attempt to show Britain was “open for business”.