Budget 2002: Disappointment as chancellor fails to axe IR35
Published: 17 Apr 2002 17:28 BST
Campaigners have reacted with disappointment to Wednesday's Budget after the chancellor, Gordon Brown, failed to repeal the controversial IR35 tax.
Both the Federation of Small Businesses (FSB) and the Professional Contractors Group (PCG) have urged Brown to bring an end to IR35, which has been blamed for driving thousands of self-employed IT workers overseas or out of business.
Brown did not take up this advice. He did announce several measures that he claimed would substantially help small businesses, including cutting the small business tax rate from 20p to 19p, and abolishing it altogether for companies that make taxable profits of less than £10,000 per year.
Despite this, the PCG are unhappy that IR35 remains in place. "We're disappointed that the chancellor has not taken the opportunity to do something that would really help small businesses. By failing to abolish IR35 he has lived down to our expectations," said Susie Hughes, a PCG spokeswoman.
Under IR35 some self-employed workers are taxed at a higher rate because the Inland Revenue decides they are effectively full-time employees. The PCG recently lost a legal attempt to have IR35 overturned, even though the judge hearing the case was critical of the way that the Inland Revenue was applying the tax.
According to Hughes, the UK's small business sector is suffering because self-employed workers are unsure whether their contracts will fall under IR35 or not. "IR35 has created a climate where small businesses cannot operate with confidence. No-one knows what the situation is, and even the Inland Revenue's own inspectors are making conflicting rulings," Hughes claimed.
Brown was also criticised for the way that IR35 was announced in the March 1999 budget. Responding to the budget, opposition leader Ian Duncan-Smith accused the chancellor of failing to discuss his more unpopular measures. "Everyone on this side of the house remembers the IR35 tax on the self-employed, which was never actually announced by him (in the budget speech)," said Duncan-Smith.
Brown announced some other measures aimed at increasing the takeup of e-business, including incentives for small businesses to file their taxes online.
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