UK Paymaster General Dawn Primarolo yesterday told financial and legal experts that she has an open mind on contractors' tax measure IR35, after protests against its planned implementation from a wide range of IT and business groups.
Although the Labour Treasury minister made it clear that she still wanted to tackle deliberate tax avoidance by service companies, she said had not made up her mind on either policy or implementation.
"She said she hadn't decided yet what to do," said attendee Anne Redston, chartered tax adviser at Ernst & Young. "The target [of cutting avoidance] is still there, but the method may be different."
The Paymaster General told the meeting that she and Chancellor Gordon Brown will come to a policy decision as soon as possible as to whom the measure should affect, and will then consult again before deciding on its implementation. No dates were given.
A new version of the Inland Revenue's much criticised plans for implementation of IR35, promised before Wednesday's meeting, was not released to participants. Redston said this may mean the minister bounced them back for a further rethink.
David Ramsden, director of freelancers' lobbyist Professional Contractors' Group, stressed he had not yet spoken to attendees, but said it sounded like good news.
"I would call on the government to remove clauses 70 & 71 from the Welfare Reform and Pensions Bill," he said, referring to enabling clauses for IR35 in a Bill currently under consideration by the House of Lords.
Ramsden added that if the Paymaster General had not made up her mind on IR35's policy and implementation, supporting legislation should be suspended until she had.
Mike Cullen, chairman of the British Computer Society's contractors group, said it was unsettling that a measure planned for introduction next April was still so unclear.
He said the process should follow the model used during changes to contractors' travel and subsistence allowances in the mid 1990s, where a discussion document was published, followed by a three month consultation period, before legislation was introduced.
"We can't praise enough the way that went," he said.
Primarolo's meeting, held at the Treasury, was attended by Redston for the Chartered Institute of Taxation, and representatives from the Law Society, Confederation of British Industry and the Institute of Chartered Accountants. They criticised the Inland Revenue plans for hitting too many people and being difficult to implement.
Primarolo's comments echo the government's original press release IR35 (click here for document), which spoke of tackling tax avoidance in those who leave work on a Friday and return on Monday, using a service company to save tax.
Since then, Inland Revenue plans for IR35's implementation have threatened to make up to 66,000 contractors abandon their company structures, according to a Department of Social Security assessment (click here for document). Contractor groups say the Revenue's plans will cost them a quarter of their net income.
Freelancers save tax through service companies by paying themselves largely in dividends. These are taxed a slightly lower basic rate, and do not attract national insurance contributions.
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