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So when is a business not a business?

So when is a business not a business?

That is a question that’s been exercising me and a few like-minded souls over the last week. And this existential philosophising has been prompted by the planned creation of the IR35 Forum, which aims to establish who is liable for consideration as IR35 fodder and who isn’t. So first a quick history lesson may be in order.

The idea of IR35 as a way to recover NICs avoided by use of dividends has been around for quite a while. It was certainly floated to the Thatcher/Major governements and was firmly rebuffed as being both ineffective and unnecessary. Still, treasury officials are nothing if not doggedly persistent (or doggedly bloody-minded, if you prefer) and it came up again when we switched to New Labour. And found an ally in the Paymaster General, the fragrant Miss Primarola.

However, Primarola – herself, let it be remembered, a failed tax evader (which takes a degree of ineptitude all by itself, having had a tax bill she didn’t agree with paid for by a supporter with perhaps more money than sense) – was adamant that IR35 was only aimed at people cheating the system,. Those “genuinely in business” need have nothing to fear.

Yeah, right…

So wind on ten years and we have a new government and IR35 cases are still being prosecuted almost at random; a recent case is against someone who has been providing services to multiple concurrent clients for several years. Like I said, the usual dogged persistence by HMRC. Or something canine anyway (or should that be lupine…?)

Anyway, now it turns out that we get to keep IR35 because it will stop people leaping from employment to freelance doing the same job to avoid paying the taxes they now owe since their offshore EBT money boxes have been slammed shut. This is almost as skinny an excuse as the original Dim Prawn explanation, but we can live with it, as long as IR35 is only aimed at these cowboy Friday-to-Monday converts and not us real businesses.

Osborne took the key OTS suggestion and has determined that the administration of IR35 needs to be vastly improved. Setting up the IR35 Forum for that very purpose is happening now. It is something of a shame that he didn’t take the extra step and set up something vastly to improve the administration of HMRC itself, but let’s be grateful for small mercies

So the IR35 Forum’s most knotty problem will be working out the common factors between Mr Patel at the corner shop, the guy with a successful SME business, the average jobbing contractor and the traditional self-employed and separating them from someone who genuinely has incorporated just to save paying some taxes. Perhaps they should look for the crossed fingers?

It ought to be as simple as saying your client today isn’t the same as your employer two days ago, you’re VAT registered and have a company bank account, but the more you look into it the harder it gets. This is one debate that I suspect is going to run and run. And one that whatever the outcome. A lot of people aren’t going to be happy with it.

If only we could wave a magic wand, bin IR35 and start from a clean sheet of paper. If only…

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited<

Image: magnifying glass by Tall Chris

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