Government reply to PSC probe: industry responses
'Clear, consistent and turning down change'
In essence, the government in its formal response to the Lords’ review into PSCs is re-emphasising its previously confirmed position on IR35, namely to keep the legislation in its current form and improve enforcement, says Rob Crossland, chief executive of Optionis.
Indeed, the government position now seems fairly clear and consistent.
It’s also pleasing to see the importance of the flexible workforce, along with the legitimate use of PSCs and the role played by compliant umbrella businesses, being recognised by policymakers.
Given the improving economic environment and the importance of the flexible workforce in this, a degree of stability is very helpful. The last thing contractors, service providers and recruitment firms need at this point is more legislative change.
We support HMRC’s ongoing efforts to improve the administration and enforcement of IR35, and through the Freelancer and Contractor Services Association (FCSA) are involved in this process.
‘Numerical guesswork on IR35, but a couple of welcome assurances’
The government has further clarified and amplified how IR35 figures have been calculated, and has said that it will publish an updated administrative impact assessment during the Autumn, says Samantha Hurley of APSCo.
But we’re concerned that HMRC’s amplified calculations (viewable in the Annex here) are based on figures which appear to be quite old (2008/9 and 2010/11), and that there appears to be a good deal of guess work involved, particularly around salary levels and the behaviour of company directors.
However, we welcome HMRC’s continuing confirmation that it appreciates the positive contribution to the economy by those working for themselves, and that such additional risk should be recognised in the tax system
We also welcome the Government’s decision to wait before making radical changes to the tax and national insurance system, as we believe businesses, particularly in the recruitment profession, are already struggling to keep up with the numerous and burdensome changes in legislation introduced in recent years.
‘Contractors still burdened by IR35, and its administrative misfires’
The formal response to the Personal Service Companies Committee clearly shows that the government is committed to enabling genuine businesses to do what they do best, and help to build a stronger economy, says Jason Piper of the ACCA.
But we know they face an uphill struggle to persuade contractors that IR35 is anything but a burden, and often an unfair one at that.
Some of the steps that have been taken to try to help seem to have misfired – there’s a concern that the Business Entity Tests have misfired and are being wrongly applied by end users to miscategorise contractors and impose inappropriate terms. The BETs are a risk assessment tool, and like any tool you have to use it properly to get the right outcomes.
We look forward to working with HMRC through the IR35 Forum to try to improve the administration of IR35. It is always going to be a difficult law to apply, because it is trying to do too many things at once – but until the whole shape of the UK tax system changes, the risk is going to be there that people might abuse the tax and company law freedoms that are designed to reflect the underlying policies around risk and reward in business.
'Predictable, ineffective and damaging'
The government response to the PSC Committee is hardly surprising, says Martin Mckechnie of The Low Tax Group.
The committee raised serious concerns with the figures and assumptions that HMRC have used to demonstrate the effectiveness of IR35. However the government show no sign of taking these concerns seriously by again asserting the validity of their figures.
IR35 has proven to be an ineffective and unnecessary burden on entrepreneurs and contractors, the impact of which even the government cannot accurately demonstrate. HMRC claim to be on the side of entrepreneurs and contractors, but this response again shows HMRC are really only interested in the short sighted politicking of raising taxes, with no regard for the real impact and damage IR35 does to contractors and their prospects.
Editor’s Note: Further Reading –