Tax Simplification – the first real challenge has arrived, says IoD

Dated: 21 October 2010

The Office of Tax Simplification (OTS) is starting to look at IR35, the rule that taxes some contractors who work through personal companies as employees rather than as independent businesses. This is good news – the rule needs to be simplified to lighten the burden on business.

However, it is very important that the Government should accept the OTS’s recommendations when they appear, or give very good reasons for rejecting them. Anything else would indicate that the Government is not fully committed to tax simplification.

Key points

  • IR35 needs to be simplified. It was introduced in 2000 as a solution, but it has itself become the problem. It burdens business people with lengthy tax investigations that very often produce no result for the Revenue. It applies vague criteria, so neither business people nor the Revenue can predict the outcome of an investigation, even once all of the facts are known.
  • The Institute of Directors today publishes its initial submission to the OTS. It analyses the problem and the constraints on possible solutions, and sets out a framework within which an alternative could be constructed.
  • The key thing is to ensure that new tests to determine tax treatment can be applied mechanically. Vagueness must be banished. And there needs to be an initial screening test, to take as many businesses as possible out of the scope of the successor to IR35 before they have to get down to the detailed tests.

Richard Baron, Head of Taxation at the IoD, said:

“The Office of Tax Simplification is very well-placed to come up with something better than the current dog’s dinner of IR35. It has both the expertise, and the necessary remit to take the views of outsiders.

“The real challenge will be for the Government. Will it show that it means business about tax simplification, by accepting the Office’s recommendations when they appear or giving a watertight reason for rejecting them? The Office should not pull its punches. It should make a strong case for its preferred solution, and put Ministers on the spot.”

ENDS

Contact Points

Edwin Morgan
Media Relations Manager
Institute of Directors, 116 Pall Mall, London SW1Y 5ED
Tel: +44 (0)20 7451 3392
Mob: +44 (0)7814 386 243
Email: edwin.morgan@iod.com
Website: www.iod.com/policy

Notes to editors

  • The IoD (Institute of Directors) was founded in 1903 and obtained a Royal Charter in 1906. The IoD is a non-party political organisation with upwards of 45,000 members in the United Kingdom and overseas. Membership includes directors from right across the business spectrum – from media to manufacturing, e-business to the public and voluntary sectors. Members include CEOs of large corporations as well as entrepreneurial directors of start-up companies.
  • The IoD offers a wide range of business services which include business centre facilities (including ten UK regional centres [three in London, Reading, Birmingham, Cardiff, Manchester, Nottingham, Edinburgh and Belfast] and one each in Paris and Brussels), conferences, networking events, virtual offices and hotdesking, issues-led guides and literature, as well as free access to business information and advisory services and a comprehensive Information Centre. The IoD places great emphasis on director development and has established a certified qualification for directors – Chartered Director – as well as running specific board-level and director-level training and individual career mentoring programmes.
  • In addition, the IoD provides an effective voice to represent the interests of its members to government and key opinion-formers at the highest levels. These include ministers, constituency MPs, Select Committee members and senior civil servants. IoD policies and views are actively promoted to the national, regional and trade media.
  • For further information, visit our website: www.iod.com
  • You can also keep up to date with the latest views from the IoD on twitter.com/The_IoD and at blogs.iod.com