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Amendments to IR35 unlikely until April 2012 says expert

Contractors expecting amendments to IR35 being made in the next planned budget in April 2011 may be disappointed. Although the legislative process could introduce amendments to IR35 as early as April 2011, the message from the Office of Tax Simplification (OTS) is that amendments to IR35, or replacement legislation, will take some time to formulate.

“The OTS was established to provide independent advice and recommendations to the government, with one remit being to review small business taxation and specifically to review IR35,” explains Andy Vessey of IR35 experts Qdos Consulting. “The message from the director of the OTS, John Whiting, in an interview with Taxation is that he does not want to see yet another ‘sticking plaster’ used as a temporary fix for the problems caused by IR35.”

IR35 consultation, then change?

According to Vessey, a more likely outcome in April 2011 will be the recommendation that a further consultation takes place, particularly involving a dialogue with HMRC, as the current government seems keen on consulting experts and businesses about major legislation changes.

“Although in the past the Treasury and HMRC have done little more than pay lip service to the consultative process,” continues Vessey, “there have been many occasions where the Treasury and HMRC have taken on board what experts have said. Sometimes they’ve then amended legislation accordingly, and in some cases have dropped it all together.”

Vessey’s view is that the existing consultation process has worked very effectively in the past, and there is no reason why it should not continue to do so. A proposed consultation is what’s likely to be the output of the IR35 review by OTS in six months time when the next budget, and window for tax law changes, is due.

How tax law is made

“Any amendments to IR35, or repeal and replacement with something different, will start life in a finance bill,” explains Vessey. “The Chancellor will put this before Parliament, where the proposals will be debated before being granted Royal Assent, usually two or three months later in June or July.

In practice, though, Vessey says that Royal Assent is never withheld and any changes by MPs are likely to be minor, as key measures will have been in place since the start of the new tax year on 6 April.

“The finance bills are ‘owned’ by the Treasury and the Chancellor,” he says, “as are any consultations. HMRC and the Treasury can choose to ignore the responses to consultations, and ultimately any decisions are made by ministers. Similarly, the OTS can only make recommendation that ministers can choose to accept or ignore.”

Based on what John Whiting has said publicly, the remit of the OTS and the complexity of the task, the most likely output we will see in April 2011 is a recommendation for further consultation on IR35

Andy Vessey, Qdos Consulting

Taxpaying contractors want fairness and stability

Contractors and other taxpayers want certainty and stability in their tax affairs. “We know that contractors want simple legislation that is fairer than IR35, and provides those certainties of tax status that taxpayers need to plan effectively,” continues Vessey. “Based on what John Whiting has said publicly, the remit of the OTS and the complexity of the task, the most likely output we will see in April 2011 is a recommendation for further consultation on IR35.

“But when the amendments to IR35 have been agreed, or the successor to IR35 has been identified, then the changes can be incorporated by the Treasury into the finance act and the tax legislation can change quickly. But,” Vessey concludes, “this is unlikely to be before April 2012.”

Published: 22 September 2010

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