New IR35 tax?

Fears are growing over a new attack on contractors. The current IR35 provisions brought in by the Government in 2000 have not been as successful as was intended in making small businesses pay more tax.

It has emereged that within the numerous press releases issued in the 2006 Budget, the tax authorities said there was ‘evidence of agencies, contractors and employers requiring workers to use corporate structures… thereby avoiding paying tax and national insurance contributions’.

We think the Government are likely to attack the composite or umbrella companies first as they provide an easier and larger target. Such umbrella companies form an intermediary between the contractor and the end client and reduce tax by giving each contractor a share in the umbrella company and paying them via dividends.

However, any attack on these organisations could well indirectly affect contractors who have their own personal service company as the tax legislation involved applies to both types of company.