End Of IR35? Budget Looks At Abolishing The Small Business And Contractor Tax Hurdle
The 2010 Budget reveals a review of small business taxation which could produce a lasting change to the way small businesses are taxed going forward.
IR35 legislation, the rule in question, relates predominantly to freelancers or contractors who are selling their services through a small company and dictates how their income is taxed.
The IR35 legislation is complicated and changeable, for this reason there are some Umbrella companies who do not keep fully up to date and compliant with these HMRC rules.
Senior Manager of OPSL Ltd (My-Umbrella) Craig Farley-Jones said "There are a number of off shore providers who are currently being investigated by HMRC, ultimately it is the contractors responsibility to check whether their chosen Umbrella Company complies with current HMRC legislation".
Salary paid through an Umbrella Company allows the contractor to offset their tax allowable expenses against their earnings.
Umbrella Companies keep records of all expenses claimed and operate a full PAYE structure which should be peace of mind for the contractor. In some cases, a provider is granted a dispensation from HMRC which allows their payrolled contractors to offset certain legitimate expenses without providing receipts.
Provided that the chosen provider complies with current HRMC legislation, the Umbrella alternative should be a convenient and translucent payroll option for contractors. The abolition of IR35 will make choosing the right umbrella company less of a mine field for contractors.
Mark Prisk Small Business Minister said: "We want to make sure that we could undertake a comprehensive review of small business taxation in a way that makes the need for the current IR35 legislation redundant.
"But we want to make sure whatever we change is a lasting settlement. One of the problems with IR35 is that it's a constantly changing set of rules."
1.4m contractors and freelancers will be affected by the review. The review is expected to launch sometime this summer.
Head of Tax at Grant Thornton Francesca Lagerberg said: "The IR35 rules have created problems for over a decade for entrepreneurs using personal service companies and have led to hundreds of tax cases, many of which have been lost by HM Revenue & Customs."
The Professional Contractors Group who called for the review have the agreement of Anne Redston A visiting professor at King's College London who added:"In this Budget the Government has set out the big picture; now they can start colouring in the details."
Tina Riches, a director at the Chartered Institute of Taxation, added: "Small business tax has long been played on a very uneven pitch. A new groundsman could have a field day in making this a fair competition."
HM Revenue & Customs are to consult with payroll providers to see if a real time system can be set up. In order to reduce costs they will also review how a PAYE system may be adopted.
Learn more about Umbrella Companies. The 'My-Umbrella' website has everything you need to know as a contractor considering the benefits of a HMRC compliant Umbrella solution.
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