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Chancellor called on to drop IR35 rules

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Alistair Darling has been urged to scrap the IR35 regime.

The Professional Contractors Group (PCG) said that the IR35 system, which affects those contractors who don’t meet HM Revenue and Customs’ definition of self-employment, should be removed.

In a letter to the Chancellor ahead of the pre-Budget Report, PCG chairman, Chris Bryce said that IR35 creates massive uncertainty.

Mr Bryce also argued that IR35 is an ineffective tax: “We know from past statements by ministers that IR35 is not known to be a revenue-raising measure.

“It is not at all clear that such monies as it raises in extra tax offset the considerable expenditure by HM Revenue and Customs in pursuing the many fruitless enquiries known to us.”

The PCG set out two other recommendations in its submission to the Chancellor.

It proposed abandoning plans to introduce legislation on income shifting designed to prevent ‘husband and wife’ businesses from gaining a tax advantage by sharing their income via dividends.

The PCG welcomed the decision in last year’s Budget to postpone implementing the new rules but went on to say that the regulations should be withdrawn altogether.

“Treating jointly-owned businesses any differently to other businesses is iniquitous and unfair,” the PCG claimed. “These proposals fail to take into account the shared risk and responsibility involved in running a business, and would harm thousands of such enterprises.”

The third main thrust of the PCG submission centred on tax rules that stop agencies from paying freelancers gross unless they have a legal form.

Mr Bryce added: “PCG would like to see this measure abolished: it is a clear example of a tax measure distorting market behaviour, contrary to the government’s own express desire that the ‘tax tail’ should not ‘wag the business dog’.”