Has the “sun set” on the IR35 Horizon?

Promised simplification of the UK’s tax regime and financial incentives for small businesses are two key notes arising out of the eagerly awaited Emergency Budget. The rest is “TBA” with technical details to be fleshed out later.

In the SME IT arena the Budget Report indicates tax breaks around Intellectual Property and R&D tax credits. While this is welcomed, cynics may wonder whether this will achieve the Government’s stated goal in making the UK the leading high tech exporter in Europe.

Owner managed “personal service” businesses will be interested to know that “The Government remains committed to a review of IR35 and small business tax and will release further details shortly”. This statement was included twice in the Budget Report and illustrates George Osborne’s commitment to simplify an overly complex tax regime.

The solution? Tax policy will be handled by the newly created “Office of Tax Simplification” and delivery of a tax solution to remedy IR35-related issues is eagerly awaited.

The Government also promises to promote employment by reducing the cost of retaining and hiring staff. This is a key area and perhaps a parallel can be drawn with end client’s obligations regarding workers rights under new EU directives and logistical tax compliance problems associated with overly complicated “PAYE” deeming tax regulation in the supply chain.

The Government’s stated objective is to “balance the books by 2016”, on the other hand it intends to give entrepreneurial businesses confidence by reducing the burden of tax. Confused? Those with a specialist interest, such as tax advisers and City financial institutions, including the taxman, are left wondering about the technical detail flowing from the dept of “Tax Simplification”.

Generally, the Budget Report points to tax incentives for small businesses which are, by definition, small. In my opinion, tinkering with small business rates (20%), employers NICs and so forth are neutralised by increases in VAT. With capital gains tax rising to 28 per cent from 23rd June, higher rate taxpayers making capital disposals should seek specialist advice.

However, perhaps the greatest area of interest for SMEs is the promise of increased access to the Enterprise Finance Guarantee (EFG) and greater transparency as tenders for government contracts will be published online.

Experience suggests that tax is never simple and SMEs need specialist advice to navigate safely in the complex tax regulatory environment to safeguard their liquidity.

I am available for comment and further discussion in the Contract Recruitment And Business Services (CRABS) subgroup of The UK and European Open Practice Technology Network . Please click on the link in the previous sentence to join CRABS, where you will find a link to this blog that we can use to discuss this online.

Chris Leslie MBCS
Qubic Associates
Director of Tax Disputes & Investigations
(O) 0191 493 4940
(e) cleslie@qubictax.com
(w) http://www.qubictax.com/

Tags: Budget, contractor, Finance, IR35 Supply Chain, Recruitment, Small Business