When will IR35 roll over and die? Ever since Chancellor George Osbourne announced the creation of an ‘Office of Tax Simplification’ to look into the flawed ‘disguised employment’ legislation, contractors have had their hopes raised for swift action.
Unfortunately, a recent announcement regarding a £2billion tax clampdown may signify a slow drawn out death.
It all surrounds something called a ‘GAAR’. GAAR stands for ‘General Anti-Avoidance Rule’ and they hit the headlines back in June when the Chancellor referred to them in his emergency Budge as a possible replacement for IR35. They were referred to again last week when Treasury Minister David Gauke published a statement which outlined how the Government would try to battle tax avoidance and recoup an extra £2bn over the next five years.
GAAR’s offer a more interpretive element to HMRC’s adjudications on matters of disguised employment. Unlike IR35, a GAAR is based on principles rather than prescriptive rules, and such legislation would enable new case law to be developed afresh. You can read more about them here.
In his statement, Gauke suggested taking a more serious look at the legislation:
“I am setting in train a study programme to establish whether a GAAR could be framed to meet the objectives of deterring and countering tax avoidance in a fair way, while providing certainty, retaining a tax regime that is attractive to business and minimising compliance costs for businesses and HMRC and, if so, how the provisions of the GAAR might be framed.”
More details of the study will be revealed in January and the study itself will be completed by 31st October 2011.
However, since Gauke’s announcement there has been a backlash against the idea.
The head of CBI’s tax committee, Will Morris, said that it would introduce “a very unwelcome element of uncertainty.”
Meanwhile, Richard Murphy, director of Tax Research had an alternative suggestion: “There is no doubt a GAAR is the wrong direction of travel – simply because it creates a rule and the tax profession thinks rules are made to be abused. A General Anti-avoidance Principle would be much better, especially if it included a change to the rules of interpretation so that a purposive construction had to be applied to tax law.”
With the idea appearing so unpopular, it doesn’t look as though it will get far. However, the precise make-up of a GAAR will have to be established first.
In May’s Budget, George Osbourne will be reflecting on the findings of the Office of Tax Simplification’s (OTS), review into IR35. However, by announcing this study into the General Anti-Avoidance Rule, which won’t be completed by October 2011, it seems that the end of IR35 won’t be a reality until 2012. If at all.