The Tail Chasing Taxman

How the EU has helped "contractors" who are contracting in name only escape tax (please see note below).

Until the 1990s, UK company law made it quite difficult for contractors to use a limited company as a tax saving vehicle, not the least because you needed at least two people to form a company. Such contractors therefore tended to be paid directly, meaning that they paid full income tax and National Insurance on all their earnings.

Then along came the EU, which decided that people should be able to form a company with just one member/shareholder and our laws were amended accordingly. That change resulted in an explosion of contractors working via a company once they cottoned on to how easy it had become to form a company and save tax.

Realising how much tax they were losing, the Inland Revenue (as it was then) brought in a rule commonly called IR35 in 2000 or thereabouts. IR35 basically states that if a worker is working via a company, they are liable for income tax etc on all earnings from their company - as if they were an employee except they also must pay employers NI - regardless of how it was paid if their working arrangement looks like employment. It is currently HMRC's responsibility to make that assessment and to ensure the tax is paid.

IR35 has not been a success and only a small number of workers who should be paying income tax under it actually are. A whole industry grew around helping contractors get round IR35.

But instead of fixing the cause - ie how easy it is for a contractor who is working for the same "employer" perhaps for several years and is in truth a de facto employee, to use a company purely as a tax saving vehicle - Osborne treats the symptom instead by passing the problem onto the client

Osborne, a Conservative is simply trying to do the same thing that the Labour government tried for years to do, which is to make it someone else's responsibility to enforce IR35 and ensure the tax is paid correctly. Of course Osborne, being the Europhile he is, cannot admit that he has no real control of the economy including tax, whilst we are in the EU. You can change governments, but nothing changes because the people we vote in are just caretakers.