Primarolo insisted in the Commons last week that ‘there was no evidence that a significant number of IT consultants were moving overseas as a result of this legislation.’
She said any consultants who left the UK for Norway, Belgium, Holland and Germany would be worse off, because of the tax regimes in those countries.
Primarolo was responding to a question by Tory spokesman Nick St Aubyn. He had asked the government to estimate the number of IT consultants moving overseas as a result of changes to the tax and national insurance treatment of personal service companies.
IR35 regulations came into force in April last year, and removed many of the tax advantages previously held by contractors who operated through personal service companies.
Primarolo also denied the allegation that the legislation targeted certain groups.
‘IR35 does not attack entrepreneurs or those who run their companies. Nor is it targeted at the IT industry. Its purpose is to deal with a specific issue.
‘The use of service companies meant that people who, in any other circumstances, would have been employees, were able to reduce their liability to tax,’ she said.
‘A service company worker earning Pounds 50,000 a year paid only 21% on tax and national insurance, compared to an employee doing exactly the same work but paid 35%,’ she added.
But shadow paymaster general and MP for Croydon South Richard Ottaway, would not drop the issue and pressed Primarolo for what he called a ‘straight answer’.
‘IR35 is not driving IT workers overseas and there is no evidence to support that allegation,’ she said. ‘The tax system encourages entrepreneurial activity in the United Kingdom.’
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