Scrapping IR35 'would save freelance companies £843 a year'

Scrapping IR35 would save each freelancer £843 a year – how much they spend to keep the 1999 legislation at bay, the Personal Service Companies Committee heard this week.

In calling for IR35 to be removed because it is costly, the PCG told the committee that the estimate was the average amount its members fork out every 12 months to protect themselves from the rule.

Removing the Intermediaries legislation would also quash the uncertainty it creates – and has done since its introduction in 2000 – while providing a fillip to the UK economy, the freelancers' trade group submitted.

Chris Bryce, the group’s chief executive, evidenced these claims by pointing out that more than a fifth of small and medium-sized enterprises are currently “put off” from engaging freelance contractors because of tax issues with such workers.

“It can only be wrong that IR35 is discouraging the use of contractors in the marketplace,” Mr Bryce told the PSC Committee. “If HMRC increased IR35 investigations, [then] that could only be bad for the economy.

“More investigations would be disruptive; reduce the output of individual contractors and their companies, and effectively would discourage those who are taking the decision to start out on their own in business… anything that damages that [the UK’s mature contracting market] damages the UK as a whole.”

If IR35 is not abolished – as the Federation of Small Businesses told the committee it ought to be – then it should be suspended, as the Office of Tax Simplification has recommended, Mr Bryce said.

The case for temporarily removing IR35 - described to the committee as “outmoded,” “redundant” and “unnecessary” - was made using PCG data showing that tax/NIC was not the main reason that 84% of freelancers claim they chose to be PSCs.

Moreover, argued the FSB’s David Ramsden, workers at the lower end of the temporary labour market are already adequately protected and so don’t need IR35 – a “sledgehammer to crack a nut,” he said.

Other than abolition or suspension, the third approach to IR35 is to simply "leave it alone," which Martin Hesketh of accountancy firm Brookson told the committee that he favoured, especially if HMRC commits to better enforcement and education of taxpayers.

If the Lords recommend to ministers in March 2014 that the government sticks with IR35 then all of the expert witnesses at yesterday’s committee session said that there were still simplifications, or improvements, which ought to be made to it.

Among them: the IR35 Forum’s external members should be listened to more by HMRC; the department should be “braver” in communicating worst and best IR35 practice, the Business Entity Tests weightings should be rescored and a simple “in or out” IR35 test should be created, so freelancers using PSCs could see “at a glance” if they are caught.

Dec 19, 2013
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