Calls for IR35 suspension after damning Lords report

STAKEHOLDERS have called for the suspension of IR35, following a highly critical House of Lords report stating HM Revenue & Customs must do more justify the law’s continued existence.

The legislation, designed to prevent people from lowering their tax bill by not being directly employed, has been the source of various controversies in recent years.

PCG, a membership organisation for contractors, freelancers and independent professionals, said a suspension with a view to abolish the rule would be desirable. HMRC has “failed to demonstrate that they have a sound basis for the £550m of tax and national insurance IR35 saves through acting as a deterrent”, the body said, in line with the House of Lords. “This is despite the fact that the claimed deterrent nature of the IR35 legislation is its main rationale”.

Last month, it emerged the number of IR35 investigations undertaken by HM Revenue & Customs grew fourfold in 2012/13.

There was public and political anger after it was revealed 2,000 senior office holders of public bodies were revealed to be receiving payment off-payroll, while the BBC revealed in September 2012 that 148 of its 467 presenters were engaged in the same fashion.

There were 256 cases in 2012/13, compared to just 59 investigations into IR35 in the previous year, according to Bloomsbury Professional.

HMRC was heavily criticised at the time for the low number of investigations it had launched, but its response has seen revenues from its IR35 activity grow from £200,000 to £1.1m.

Baroness Noakes, who led the investigation, said: “We found that there is a general lack of information of how widespread the use of personal service companies is in the UK economy and that this is due, in no small part, to the absence of reliable information collected by HMRC. This could be rectified by amending the personal tax return and employer year end declaration and making the questions on service companies compulsory, rather than optional.”

PCG chief executive Chris Bryce said: “We are calling for IR35 to be suspended while proper consideration is given to its abolition. Removing this unnecessary legislation will allow the UK’s flexible workforce to do what they do best – boost British business. The government has refused to listen to the cries for help from the hundreds of thousands of contractors, freelancers and independent professionals blighted by IR35, but they cannot ignore the findings of the committee.”

An HMRC spokesman said: “Many personal service companies are used for genuine commercial purposes, supporting labour market flexibility, but the report also recognises that some are used for tax and national insurance avoidance, underscoring the continued importance of the IR35 rules.

“We will continue to work closely with stakeholders such as the IR35 Forum, to make the rules easier to operate in the interests of the majority of taxpayers who play by the rules.”