UK tax system 'must support freelance workers'

IR35 should be abolished, freelancers must be acknowledged and tax inspectors must be held more to account, the PCG has declared, in response to a new review of the UK’s tax system.

Commissioned by the Institute of Fiscal Studies, the Mirrlees Review will probe to see whether the current system is fit for the 21st century, and suggest improvements where it is inadequate.

The Professional Contractors Group, which represents the interests of freelancers in the UK, has delivered their multi-pronged response for the attention of review chairman Sir James Mirrlees.

They claim freelancers aren’t bothered by levels of taxation, rather they are concerned about the nature of taxation and its complexity – a worry shared by almost half the group’s members.

As a result, the tax system must adapt so it ‘genuinely treats and recognises freelancers,’ whom, like other taxpayers, deserve a tax system which is easy to comprehend and administer.

"Freelance consultants and contractors provide their services to clients on business-to-business terms,” the PCG said in an online statement.

“Such relationships should be acknowledged and safeguarded so that their treatment by the tax system does not undermine their business character.”

In line with the proposals to simplify the system, the freelancer’s tax – IR35 – should be axed, as, the PCG explained, it involves an “unacceptable” level of complexity and uncertainty.

The group also questioned whether policymakers had clearly thought through the Intermediaries Legislation, as out of 1,400 cases handled by the PCG - only three resulted in monies owing.

Presumably such difficulty in complying with the tax system partly explains why relations between taxpayer and authority have “deteriorated gravely over recent years,” the group said.

To help, the PCG suggests HMRC should offer compensation if the tax authority fails to deliver a satisfactory service, particularly in light of its fondness for calling taxpayers “customers.”

To date, about a quarter of freelancers at the group want the taxman to reassess its conduct with the business community, in order for taxes “to be collected in a timely, courteous and convenient fashion.”

Any move to reform must also factor in the reality that freelancers, as micro businesses, find it “harder than most” to deal with administrative requirements of the system, the PCG said.

On the issue of the accountability and conduct of tax inspectors, PCG claims that many taxpayers find them aggressive and inefficient.

On the latter charge, the group, which has over 13,000 members, said tax inspectors investigating freelancers often approached the wrong people at client companies for information.

It recommends that such officials must be held more accountable, possibly through reviving the Taxpayer's Charter, or devising a brief code of principles against which inspectors must conduct themselves rigorously.

In addition, inspectors should undergo training in the nature of bona fide commercial practices, with a view to helping them understand the needs of micro businesses.

In a statement, the PCG reflected: “Until the trust of businesses is restored in HMRC, businesses should not be penalised for failing to approach the tax authority for advice on their tax liability, as has been proposed in a recent Revenue consultation paper.”

One suggestion tabled is for HMRC to consider the American system of 'income averaging’ to make the UK’s tax system more ‘freelance-friendly.’

According to the proposals, this would address the reality that freelancers often have periods of differing contract rates and, at times, no salary at all.

Concluding its submission, the PCG emphasized the benefits of freelancing to the UK economy.

In a message to Sir James Mirrlees, the group said that the "uniquely flexible and highly-skilled workforce…must not, therefore, be undermined by poorly-considered tax measures".

 

3rd January 2007

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