There was hope for contractors affected by IR35 last week as both Prime Minister David Cameron and his deputy Nick Clegg publicly stated the Government was looking at introducing a General Anti-Avoidance Rule to tackle tax dodgers, which could render IR35 redundant.
General Anti-Avoidance Rules (or GAAR for short) are currently in use in Canada and New Zealand among other countries, and form a general set of guidelines to discourage tax avoidance rather than literal rules which must be followed. A GAAR has long been seen as a palatable alternative to IR35, and the introduction of a GAAR would allow HMRC a clean slate with which to better enforce the contentious issue of disguised employment.
IR35 began the year in the public eye after its reform was recommended in the Office of Tax Simplification’s Small Business Tax Review, and was never far from the headlines. A supreme court ruling on contracts threw contractors another curveball in the middle of the year, while the first ever IR35 split decision was handed down in December.
Speaking to a group of small business owners last Thursday, David Cameron said
“I think we need a tougher approach, one of the things we’re going to be looking at this year is whether there should be a more general anti-avoidance power that HMRC can use.”
On the same day, Nick Clegg said in an interview with Radio 4′s Today show:
“There should be a general rule that you cannot play the system. We have received a report from an expert, Graham Aaronson, which says an anti-abuse rule is feasible.”
This is by no means a confirmation of the introduction of a General Anti-Avoidance Rule at the next Budget (as Clegg was quick to point out), but the fact that the Government is taking advice on the matter – and that the two most senior figures in Government are talking about it – means it’s a definite possibility.