The major tax bodies have called for the IR35 regime to be replaced by means of a radical overhaul of the employment status issue.
....the IR35 rules were fundamentally flawed
The Tax Faculty
A discussion paper on small business taxation, prepared by the Tax Faculty with input from the Chartered Institute of Taxation, argued that the IR35 rules were "fundamentally flawed".
If they were intended to raise revenue, there were "no statistics" to show that the objective was being achieved in practice, the paper said.
The Tax Faculty's Tax Representation TAXREP 36/04, 'Small business issues - Paragraph 5.95 of the Budget 2004 Red Book' said that the lack of available data to support the Government's estimate of £900m at risk in the absence of the measures, and a similar lack of data on the administrative and employment costs arising from IR35 investigations, begged the question "whether the tax raised by IR35 has fallen far short of its intended target".
It concluded that if the Government's policy aim of tackling the issue of disguised employment was to be achieved, the solution was a radical overhaul of the issue of who is employed and who is self employed.
The paper, published by both tax bodies, called on the government to take a pragmatic view in applying the settlements legislation to smaller tax enterprises such as husband and wife companies.
Other suggestions included the abolition of both the nil rate of corporation tax and the new 19 per cent. rate on distributed profits.
The Tax Faculty said: "We think that the issues that we have set out need to be considered further and that they should inform a meeting between tax representative bodies, business organisations and the Inland Revenue and other Government officials to discuss issues arising from paragraph 5.95."
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