Don't get your hopes up about the Lords' attack on HMRC

Somewhat of a slap in the face has indeed been dealt by the Lords to the taxman over personal service companies and the IR35 legislation but, asks Roger Sinclair of legal consultancy Egos, will it be unfairly downgraded by the government to a slap on the wrist? 

IR35 disincentives the ambitious

Uncertainty about the operation of IR35, coupled with the culture of fear cultivated by the taxman, constitutes a major disincentive to ambitious workers considering freeing themselves from the shackles of conventional employment and providing their services in a flexible, business-to-business way. 

Successive governments of different political hues have responsibility for this misconceived and loathed legislation, which remains in force 14 years down the line, without regard for the harm I am convinced that its very presence continues to do to the UK economy. 

Political inertia on IR35

Both Labour and the Conservatives -- in coalition with the Lib Dems -- have continued to allow the HMRC tail to wag the government dog. These political parties have failed to address the core point -- namely that those who choose to loosen the trappings of employment and accept greater responsibility for providing for their own destinies should not be expected to continue to contribute to the national coffers on the same basis as those who stay employed and retain the full safety net of employment rights and benefits.

Why IR35 is misconceived

IR35 is misconceived, because it imposes a tax & NIC burden on individuals which is unfairly high, and because the IR35 test depends not on the extent to which such individuals may be entitled to draw on the system in proportion to what they have contributed, but instead on an imaginary relationship. This relationship wholly disregards the reality that freelancers choose to place themselves in a position whereby they abandon the rights and so-called ‘benefits’ of 9-to-5 employment.

It is a fundamental principle that we should be entitled to certainty in relation to our tax affairs -- and it is obvious to all those potentially within the scope of IR35 that they lack such certainty.

Double disappointment

Having read Monday’s report from the Personal Services Companies Committee, it is disappointing that HM Revenue & Customs were unable to provide the Lords with hard evidence. It’s not as if this committee was sprung on the Revenue -- its officials appeared twice and presumably realised they would be asked for facts on both occasions. Worst of all, the tax authority couldn’t even supply estimates of tax revenue potentially at stake which the Lords felt able to place reliance upon, when making its recommendations for action.

It is equally disappointing, to say the least, that the committee found it necessary to expressly pass comment on the fact that the government itself had extended a marked lack of co-operation to the inquiry, refusing even to allow Treasury officials to appear to give evidence. This might be seen by some as an attempt to expressly undermine the committee’s work, by withholding information that any review of PSCs and the IR35 legislation would need in order to be comprehensive.

Government non co-operation is inauspicious

Although the Lords should be commended for recognising in their report the contribution that contractors make, I wonder how much confidence the industry can have that the committee’s criticisms of the taxman will in fact make a difference, in light of the government’s non co-operative stance. Like many advisers, I’ll continue watching this space but history suggests we might be wise not to get our hopes up.

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