Earlier today the Office of Tax Simplification released their report Small Business Tax Simplification Review, which is designed to inform the Chancellor’s decision-making process when looking to reform IR35. Although we’re going to look at the report in more detail, a provisional analysis seems to indicate the OTS are not playing the kind of hardball many freelancers and contractors would have liked. They suggest three possible alternatives to the current IR35 situation -

  • Suspend IR35 with the intention of permanent abolition, using the period of suspension to investigate behaviours and costs
  • Keep IR35 legislation unchanged, but improve the way it is administered by HMRC.
  • Introduce a new business test to exclude a large proportion of the population currently affected by IR35 from the legislation.

Option one is the suggestion we were all hoping for, option two seems to amount to essentially no change, and option three offers a watered-down middle-ground that will likely please nobody.

The OTS add -

“We have presented these recommendations to the Chancellor of the Exchequer and expect a formal response as part of Budget 2011. We expect that the response from the Chancellor will set the work programme and timetable for the final report of the OTS review of small business taxation. We are not expecting the Chancellor to formally respond to specific policy options at this stage, and the OTS plans to evaluate these in more detail as part of our final report.”

Expect more analysis later as we dive further into this document (available here), for now it seems as though The OTS have taken the path of least resistance, and are offering very little in the way of clarity or meaningful reform.

Let us know your views in the comments while we continue to evaluate the impact of these suggestions for the UK’s self-employed.