Freelancers disillusioned with latest changes to IR35

The legislation designed to enforce the UK government's IR35 change to contractors' taxes has been met with disappointment by freelancers.

The regulations and draft clauses for the Finance Bill, which will be debated and possibly revised immediately after the Chancellor's Budget speech on 21 March, were placed on the Inland Revenue's IR35 this week.

The Professional Contractors Group, which has lobbied against IR35, said there are no significantly changes in the documents released, despite hopes for a last-minute reprieve from the government. A spokeswoman for the group said: "It lives down to our expectations."

Anne Redston, chartered accountant at Ernst & Young, said the draft legislation blocks potential work-arounds for IR35, such as composite or offshore companies. "To deal with IR35, you need to deal with it properly," she said. "Short-cut solutions will not succeed."

If passed in the Finance Bill, the clauses will come into effect at the start of the new tax year in April. The Conservative Party today confirmed it will oppose the clauses in Parliament.

The drafts have been posted by the Revenue for information only. "We will not be inviting comments or entering into correspondence on its content," the site stated.

Freelancers who work through a service company have up until now been able to minimise their taxes by paying themselves partly in dividends, which do not attract national insurance contributions.

But after April, if they work on a contract which falls under IR35, they will be taxed in a similar way to a full-time staffer. Those who work in a way deemed to be self-employed will not lose the extra quarter of their net income that contractors say IR35 will cost them.

The Inland Revenue is offering to judge whether contracts fall under IR35. Email contracts to ir35@inlandrevenue.gov.uk, using a Rich Text Format document and place your company's tax reference number followed by your postcode in the subject line.