End Of Contractor Tax Hurdle For Small Business Revealed By Budget 2010

By Nelly Hall

The 2010 Budget reveals a review of small business taxation which could produce a lasting change to the way small businesses are taxed going forward.

He is of course referring to the controversial IR35 legislation which dictates how a contractor or freelancer selling their services through a company should be taxed. The review in question will look at whether this piece of legislation should be abolished.

Contractors often choose to be paid through a payroll provider or 'Umbrella Company' on a PAYE system to negate any confusion on this matter, but still there's a question mark over some Umbrella companies who don't respect the boundaries of IR35.

In a statement Craig Farley-Jones of OPSL ltd (My-Umbrella) based in Manchester said "There are a number of off shore providers who are currently being investigated by HMRC, ultimately it is the contractors responsibility to check whether their chosen Umbrella Company complies with current HMRC legislation".

Salary paid through an Umbrella Company allows the contractor to offset their tax allowable expenses against their earnings.

Umbrella Companies operate a PAYE system which deducts and keeps records of the expenses claimed. Certain expenses can be claimed without the need to provide receipts but only when the umbrella company is granted this dispensation from HMRC.

Provided the payroll company is fully compliant with HMRC, it should be a convenient option for contractors. Changes to IR35 will hopefully make the decision to use and Umbrella less of a mine field for contractors.

Mark Prisk Small Business Minister said: "We want to make sure that we could undertake a comprehensive review of small business taxation in a way that makes the need for the current IR35 legislation redundant.

"But we want to make sure whatever we change is a lasting settlement. One of the problems with IR35 is that it's a constantly changing set of rules."

1.4m contractors and freelancers will be affected by the review. The review is expected to launch sometime this summer.

Francesca Lagerberg Head of Tax at Grant Thornton stated: "The IR35 rules have created problems for over a decade for entrepreneurs using personal service companies and have led to hundreds of tax cases, many of which have been lost by HM Revenue & Customs."

The Professional Contractors Group who called for the review have the agreement of Anne Redston A visiting professor at King's College London who added:"In this Budget the Government has set out the big picture; now they can start colouring in the details."

Tina Riches, a director at the Chartered Institute of Taxation, added: "Small business tax has long been played on a very uneven pitch. A new groundsman could have a field day in making this a fair competition."

HMRC are set to liaise with payroll providers in the hope of devising a real time system to manage the changes. In the hope to reduce costs they will research the possible PAYE system.

Article Source: http://interpret.zar.vg

About The Author
If you are looking for a fully HMRC compliant Umbrella Company, or more information on the many contractor benefits , visit www.my-umbrella.net .