An alternative IR35 'substitution'

The Association of Independent Professional and the Self-Employed (IPSE), formerly known as the PCG, set out taxation proposals in the September manifesto, titled ‘Britain’s Secret Weapon’.

Within it were four ideas but one of particular interest:

The Freelancer Limited Company (FLC) which effectively would allow contractors to work free of IR35.

Features would include:

  • Only one shareholder
  • Registering on a freelancing register
  • Extracting money via a fair Salary-dividend split
  • Automatic recognition as a genuine business and therefore exempt from IR35
  • Less onerous employment status tests
  • Simplified accounting
  • Ability to register for benefits between contracts
  • Entitlements to tax credits

Whilst the reality of this may be appealing I’m sure the most seasoned contractors would see this as less rewarding than the current IR35 legislation in place.

IR35 is already a grey area and topic of conversation. Adding a veil would only complicate matters further. The Employment status would still need to be ascertained through tests, not dissimilar to the failed Business Entity tests that were recently scrapped.

Other ideas included:

  • Harmonisation of income tax and NI, however this is a massive and complex undertaking and in no way a quick fix
  • Establishment of an independent body of experts to bring about the merger of income tax and NI.
  • Abolition of the 24 month rule for contractors

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