Government sets IR35 review terms

The wider terms of the government's promised review of small business tax, including the IR35 legislation, have been formally set out by Her Majesty's Treasury.

To be led by the Office of Tax Simplification, the review will recommend how to simplify the tax system, ease administration and reduce uncertainty for small firms.

The office's recommendations, to be handed to George Osborne, the chancellor, will form the basis of an initial report to be published in time for the next Budget in 2011.

Some of those recommendations will focus on "alternatives to IR35" - in line with the government's pledge to replace the rule with simpler, anti-avoidance measures.

According to the Treasury, those measures will not "place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility."

However, IR35's replacement will ensure "where intermediaries are used to disguise employment, [that] any income that is effectively employment income is taxed fairly."

Alongside the measures, the OTS will ask the state to consider "issues in relation to the structure of the tax system and the employment status test more generally."

The result may have a bearing on wider issues about employment status, the Treasury notice says, and the boundary between employment and self-employment.