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Rumours started circulating on websites after a report in Private Eye that the Revenue compliance unit was being scaled down. The rumour gained momentum on internet discussion groups with unconfirmed reports that the Revenue was quietly withdrawing from IR35 as it failed to bring in sufficient funds.
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Terms like 'disguised employees' and 'tax motivated incorporation' have now become common parlance in the small business world, when, a few years ago, the terms had never been used.
From a political perspective, it is clear that, on the one hand the Government wants - and needs - to encourage the growth of small businesses. But on the other, it wants to stamp out tax advantages for those companies it considers are formed or operate merely to take advantage of these arrangements.
Regardless of the efficiency of IR35, it would be a considerable political loss of face for Ministers concerned if they were to admit defeat and abolish it - without, at least, replacing it with a similar, and perhaps more draconian, measure.
IR35 was the first step of the Government's commitment to addressing what it sees as the 'incorporation industry'. It is currently reviewing the use of managed service company schemes and plans to take action to counter 'disguised employment' though these vehicles.
Is IR35 dead?
So is there any substance in the rumours that IR35 - or the Intermediaries legislation as the Treasury calls it - is dead in the water?
Certainly, in practical terms, informed freelancers and their professional advisors are winning the investigations battle. And many freelancers protect themselves against possible Revenue investigation, with insurances like Freelancers Outside IR35.
However, the Revenue has never released information relating to the tax take from IR35, and it is fair to assume that there will be a number of less well-informed freelancers who just pay it.
Treasury comment
Shout99 asked the Treasury to respond to the rumours relating to the demise of IR35.
A Treasury spokesman said: "The Government has maintained a consistent policy of supporting business and enterprise.
"It has provided a tax regime that has incentives to encourage individuals to invest for their own future and for the prosperity of Britain and incentives to encourage businesses to expand and grow. The Government is concerned that individuals and businesses have been encouraged to take advantage of these incentives and use them to reduce their tax and NICs liabilities through 'tax motivated incorporation'.
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"HMRC continues to address compliance issues arising from the Intermediaries legislation.
"HMRC uses compliance resources to achieve maximum effectiveness, and has increased efficiency by getting more value from the resources deployed, and taking a risk-based approach."
So does this mean, in basic language, that the Revenue will be continuing to pursue IR35 investigations?
The Treasury confirmed that HMRC will be continuing to implement the Intermediaries legislation.
So, for the time being, it looks like reports of IR35's death may be a little premature. Even if the rumours are true that less resources will be directed on enforcing IR35, it will still remain a reality for those who are chosen for investigation.
And as freelancers can testify, even legislation lying dormant on the Statute books for decades, such as Section 660 the controversial married couples business tax, can have a habit of awakening with unpleasant consequences.
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Susie Hughes © Shout99.com 2006
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