Sole traders should be 'careful what they wish for'

Date: 6th July 2010

Sole traders operating in the UK who are longing to see the back of IR35 tax legislation have been told "be careful what you wish for" by one specialist advice site.

Contractor Calculator has warned that if the controversial tax is abolished, its replacement could see sole traders' tax payments increase.

The website explained that the introduction of IR35 indirectly led to the emergence and improvement of umbrella solutions providers.

According to the firm, HM Revenue & Customs is likely to urge the Treasury to install similar or more stringent measures as umbrella companies have proven to be an "extremely efficient" collector of tax and National Insurance contributions (NICs), delivering a "steady cashflow" for the government.

"Taking a simplistic approach, a scenario where the chancellor requires all personal service companies, however they may be defined, to pay income tax and NICs on a percentage of fee income, to be determined but potentially quite high, is not beyond the bounds of possibility," the website explained.

"This would require all contractors to pay more tax. Is that what we would wish for as an IR35 replacement?"

Posted by Thomas Fletcher