IR35 condemned by UK accountants

The Institute of Chartered Accountants (ICA) has issued a scathing report on the controversial IR35 tax change, giving it an overall rating of just three out of 10.

The ICA's Tax Faculty, which scrutinises changes made to the UK's tax system, told the UK Government it "could certainly do better", adding that IR35 failed on fairness and was damaging to the UK's business climate. In both these areas, the ICA gave the tax change zero out of 10.

"It's a woeful set of proposals," said Francesca Lagerberg, senior technical manager for the Tax Faculty. "We think it is very bad for UK plc, as it makes us uncompetitive with other countries. It wasn't subject to proper consultation, what the minister said it does and what it actually does are different things, and there is uncertainty as to what will happen next."

IR35 will strip many freelancers working through their own companies of previously held tax advantages. It came into effect at the start of the tax year in April.

It was introduced with the 1999 Budget, aiming to stop individuals transferring from a full-time job to the same post as a freelancer and paying less tax, but it also hits tens of thousands of IT contractors with similar work patterns to full-timers.

The ICA, which represents accountants in England and Wales, rated IR35 against 10 criteria. The legislation managed a reasonable score for parliamentary scrutiny - seven out of 10 - and middling ones - five out of 10 - for ease of calculation and collection, and proper targeting.

Freelancers' body the Professional Contractors' Group (PCG), said the judgement justified its long-running opposition to IR35. "Either the government should scrap it and make the UK the place for ebusiness, or otherwise I would assume that the Prime Minister is content for his ministers to introduce second-rate legislation," said spokeswoman Susie Hughes.

The PCG is bringing a judicial review of IR35, which should start later this month.

The ICA's Tax Faculty website can be found at www.taxfac.co.uk