The Conservative and Liberal Democrat Coalition government pledged to review IR35 legislation and according to the government it is still on the agenda to be reviewed. However, with the public deficit requiring more urgent attention, the review of IR35 legislation will probably have to be dealt with by the Office of Tax Simplification.
In the emergency Budget on Tuesday it was announced that the initial £5,000 of National Insurance contributions payable by employers will be exempt for up to ten employees for 12 months. However, this incentive for employers will not apply to anyone who falls within IR35 rules, which implies that IR35 legislation will be in existence in its current form at least until the implementation of the National Insurance scheme.
If you are working through a Managed Service Company then the exemption of National Insurance contributions for the first 12 months will again not apply. Some are coming to the conclusion that the IR35 legislation is the backbone of all regulations regarding tax avoidance schemes.
Not all the announcements from the Budget were negative for contractors and freelancers as the personal allowance threshold will increase to £7,475 from April 2011, thus allowing contractors and freelancers to take home more pay. National Insurance thresholds are also to increase by £21 a week, which will be a large saving for employers. As the public sector are facing a pay freeze as well as spending cuts it may be possible that freelancers and contractors will bridge the gap that would otherwise be filled by permanent employees.
The Government has made cuts in many areas but has introduced measures to help small businesses, especially new enterprise and one man businesses. Limited companies are set to benefit from the lowering of corporation tax rates from 28 percent to 24 percent taking place over four years, commencing April 2011, encouraging growth in enterprise.
