Inspectors told to go easy over IR35

Paymaster general Dawn Primarolo announced in the Commons she had told the Inland Revenue ‘that officials are to give the benefit of the doubt where businesses make genuine mistakes when trying to comply with the rules’.

She revealed the softly-softly approach at the end of a heated debate on what Tory and Liberal Democrat MPs insisted was a deliberate Treasury-lead attempt to move the boundary between employment and self-employment to the disadvantage of the latter.

Primarolo added: ‘That is only fair, given the change during the period. It is a light-touch approach.’

But she warned that where avoidance of tax and national insurance contributions ‘is deliberate and intended’ the same penalties would apply as already exist ‘for trying to avoid paying tax and national insurance.’

The minister also promised to reconsider the position of oil workers forced by North Sea operators to use service companies because the operators feared they would be liable if workers engaged on a self-employed basis failed to pay their tax and NICs.

She claimed the Treasury had doubled their estimate of the extra revenue raised from the crackdown to £900m from a further examination which revealed that ‘the avoidance mechanism is being used far more extensively than we had anticipated’.

The minister firmly brushed aside claims that the crackdown would push IT consultants in particular into emigrating – claiming Germany, the Netherlands, Norway and the USA all operate IR35- type regimes which leave contractors with less take home pay than will be the case in the UK.

And she maintained the definitions of employment and self- employment are unchanged and that the crackdown will only hit those who would fulfil the criteria for employment but for working through a service company, who will still be entitled to a 5% allowance for accountancy and other administrative costs.

Liberal democrat Edward Davey forecast the change would be challenged in the courts as an anti-competitive measure that discriminates against small businesses and ‘favours the big boys’.

Contractors go to court over IR35

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