26th July 2010

IR35 review set up by Government

The government's promised review of small business tax, including the IR35 legislation, has been formally set out by the Treasury.

The detailed review, which will recommend how to simplify the tax system, ease administration and reduce uncertainty for small firms, will be led by the Office of Tax Simplification (OTS).

The recommendations it makes will then be handed to Chancellor George Osborne ahead of the next Budget in 2011.

Some of those recommendations will focus on alternatives to IR35 - in line with the government's pledge to replace the rule with simpler, anti-avoidance measures.
These replacements will 'not place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility,' says the Treasury.

However, IR35's replacement will ensure that 'where intermediaries are used to disguise employment, [that] any income that is effectively employment income is taxed fairly.'


Chancellor George Osborne said, “Two years ago I promised to create the Office of Tax Simplification. Today, we’re delivering on that promise. With its independent, expert advice it will be a permanent force for a simpler tax system.

“Simplification in a complex world is a real challenge but it’s one that has to be addressed if the tax system is not to hinder the economy's ability to grow,” he added.

Alongside its specific recommendations, the OTS will also consider more general issues affecting the tax system and the employment status test.

The Treasury has said that the result may have a bearing on wider issues about employment status and the boundary between employment and self-employment.