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This story was in the Telegraph yesterday:

General Election 2010: Tories see vote winner in reform of tax system for self-employed

Obviously this is just rhetoric right now, but it may be worth those concerned about IR35 pressing the issue home to their current and prospective MPs.

Techincally there is a lot to unpick here, and many ifs and buts. Like so many things it may not be all it seems.

For example the report talks about paying Self Employed Class II NI at £2.40 per week rather than 11% Class I as an employee – however the self employed also pay 8% class IV NI on the first £44,000 of their income. Likewise, of course, a IR35 caught case isn’t paying 11% NI – in fact its (broadly) 23.8% on the first £44,0000 the 12.8 on the remainder.

Simply allowing PSC users to opt out of full NI may cause fairness issues, as the benefits received are, by some measures, not vastly different between the employed and self employed with the notable exception of Earnings Related pension provision (currently S2P, previously Serps).

An alternative may be to abolish the agency regulations – the legislation that predates IR35 by many years which requires agencies to deal with employees or limited companies only, and specifically not sole traders – and allow agency workers to be self employed. However that would bring its own problems as it would open the floodgates for all agency workers to be self employed, even at lower levels, and it may also restrict the current beneift that outside IR35 limited company users get from sharing income with a spouse.

The Chineese curse about living in “ineresting times” rings true.