Almost 100,000 freelance professionals and contract workers in the North West have been hit by new red tape as the government acts on powers to demand additional taxation and National Insurance, with penalties and interest payments backdated up to six years.
The measures were introduced by Gordon Brown to maximise the effectiveness of the controversial IR35 legislation, introduced in 2000, which the government hoped would raise an extra £220 million per year.
Celine Macdonald-Matti is North West branch manager for Freelance Euro, an accountancy firm providing specialist services to freelance and contracting professionals.
She says: "The IR35 legislation is notoriously complex, but with careful planning it is possible to understand the legislation and work within the law to maximise personal benefits and minimise taxation. Many people fall foul of IR35 simply because they do not understand its full implications. Also, many parts of the legislation are still subject to ongoing case review which complicates matters further. Key factors in determining compliance are whether you are the only person permitted to fulfil the designated role and whether the client controls all aspects of the service you provide."
In the 2004 budget, Gordon Brown failed to announce the clarification of employment and self-employment which many had been hoping for, while also removing some of the tax advantages for companies with annual profits of less than £50,000. The impact of this on the number of self-employed individuals choosing to form their own companies is clear, with just 46,794 new businesses registered at Companies House between March 21 and May 2 this year, compared to 57,264 over the same period in 2003, a fall of 18 percent.
For more details see:onrec.com