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Once upon a time, in the Golden Age, a computer programmer in the UK would leave his permanent employment and become a Contractor. This meant that he could concentrate on his core skills - programming. He would no longer need to collect years of documentation, spend his day on the phone getting new specifications, trying to get other people to do the work over weeks that he could do in a couple of days if these interminable interruptions would just stop.
There were real tax advantages - you not only received a decent rate for your work (about the level of a Project Manager) but you could choose your salary rate and thus the level of National Insurance you payed. (National Insurance is the great hidden tax - the Income Tax rate is 25% to 40% but National Insurance adds 9% to the Employee and 11.5% to the Employer). Accountants would generally advise paying about �6,000 per year as salary and this meant that your Employees and Employers National Insurance was kept at a minimum. All your expenses, such as travel, accommodation, computer equipment, and training were tax-deductable. Of course, you payed more tax in total than you did when you were a permanent employee, but less than if you were in permanent employment on a quoted salary at the sort of levels
With IR35, contractors have to pay employees and employers National Insurance - considerably more than any employee. It is a punishment for enterprise and it means that it is more difficult to build up a company with diverse interests since you pay up to 60% tax on money you receive. Of course, contracting itself makes it difficult to build up an enterprise - the work is nearly always urgent and will involve long hours and a lot of pressure.
The obvious answer: to get more tax into the Government coffers. And yet, that can't be the whole story. It almost certainly wasn't put forward by the Labour government (known for their dislike of individual enterprise - despite which I still voted for them) but by the Inland Revenue. If the Conservatives had remained in power, they would have introduced the same measure, probably with a different justification from 'disguised employment'. I believe it was the Inland Revenue getting jealous of the Contractors they knew (the IR are big users of contracting services) - too many arrogant sods with their BMWs and expensive suits. Since most of the IR staff want to become ' Consultants' to the private sector when they grow up (hourly paid, independant, low NI, etc...), they just got envious of computer programmers who had done exactly that.
The most common way to avoid IR35 is probably to ignore it. After all, the Inland Revenue don't have enough Inspectors to go round checking on every Computer Sevices Limited Company. But it does mean that you need to lay aside enough to pay it if the Inspectors ever catch up with you. On your quarterly PAYE returns, your accountant will ask you to sign a declaration about whether any of the services you provide might be covered by IR35. If you answer no then you might get in big trouble in the future.
The nature of contracting makes the possibility of submitting a contract to the Inland Revenue for prior approval almost impossible. A contract is almost always up for immediate acceptance - if you say I'll get it checked out then it will be offered to someone else or at least a new batch of people will be interviewed. The Inland Revenue will take much too long to assess the contract. In the end you have to take the contract without knowing whether it passes or fails IR35. In addition, the IR seems to almost always assert that a contract fails IR35 at least twice, before it finally accepts it passes IR35.
Where IR35 decisions have gone to a commission, a clear pattern has emerged: where a contractor runs his company like a business he stands a good chance of avoiding IR35. In other words, employers insurance, public liability insurance, more than �5,000 of office equipment, paying for training, paying for advertising, and, most important of all, a number of clients. How you are meant to fit in these other clients when your main contract demands 55 hours per week, I don't know.
My personal view is that computer contractors should be the ones who exploit the possibilities of the Internet. We are asked to build applications for other people, but instead we should be building them for themselves. If we are really worthy of being taxed like entrepreneurs, then we should act like them. If all we do is just wait for other people to come up with the ideas and sort out the budget and then specify the systems, then perhaps we deserve nothing more than IR35. Start a number of websites, find out what works, figure out how to turn traffic into money. Make a real company, and when it pays enough to support you, get out of the United Kingdom and deprive them of the tax receipts!