Three UK industry groups have today made a last-ditch attempt to try to force the government to reconsider its IR35 tax changes, currently before Parliament in the Finance Bill 2000.
IR35, which critics estimate could cost IT contractors about a quarter of their net income in extra tax, was announced in last year's Budget. It affects freelancers charging clients through a company and paying themselves largely in dividends, which are taxed less heavily than wages.
In an open letter published in today's Financial Times, representatives from the Confederation of British Industry (CBI), the Federation of Small Businesses, and the Professional Contractors Group urged the government to reconsider the new tax measures. The groups described IR35 as "detrimental" to the small business sector, the knowledge-based economy and the UK's drive to lead the world in high technology.
"The legislation will also discourage entrepreneurs to remain UK-based taxpayers," said the groups.
"We would call on the government to draw a halt to this, while there is still time to do so, and to consider a better way forward."
Ian Handford, national chairman of the Federation of Small Businesses, said he does not expect the letter to change IR35 but he hopes that it will encourage the government to use the legislation wisely.
"Ministers should go to the Inland Revenue and make sure the legislation is used carefully and only where there is proof beyond all doubt that a personal services company has been set up purely to avoid payment of national insurance contributions," he said.
"They should make sure the enforcement of IR35 is not used by the Inland Revenue as an excuse just to nose around the affairs of companies we want to encourage in the technology field."
Handford said there is still a window of opportunity for the government to review the situation before Parliament's recess on the 28 July when all legislation needs to be dealt with.
"It's a strong message and all the ministers involved will be aware of the letter's publication," he added.
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