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Controversial IR35 tax rules set to be scrapped in a boost to small business

SMALL businesses were given a boost by the chancellor yesterday with the news that controversial IR35 tax rules for entrepreneurs using personal service companies could be abolished.

Other fillips included a reduction in the small profits tax rate and a national insurance contribution holiday for small start-ups in certain regions.

Francesca Lagerberg, head of tax at accountants Grant Thornton, said: “The review of small business taxation has taken seven years and the hoped-for abolition of IR35 looks very much on the cards. 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 HMRC.”

Other incentives included an overarching review of the way that small firms will be taxed in the future. A holiday on national insurance contributions (NIC) comes as welcome support for start-ups outside of London and the South East. This exempts the first £5,000 of class 1 employer NICs due in the first 12 months for each of the first 10 employees hired. The relief, to last three years, will encourage businesses to take on their staff when they might not otherwise be able to afford it.

“More good news is the reduction in the small companies rate of tax which falls 1 per cent to 20 per cent from next April. This reverses the recent trend of increasing taxation,” Lagerberg added.