Contractors could draw few conclusions from the results of the of Lords’ Select Committee on Personal Service Companies (PSCs) inquiry apart from the fact that IR35 is not working. So, for the government to effectively dismiss all the Lords’ carefully considered findings takes us all beyond astonishment – clearly there are ministers and civil servants out there who are in complete denial.
The Lords made 16 recommendations and the government’s response was lacklustre, to say the least. “We support HMRC/the IR35 Forum [delete as applicable] to [add activity as appropriate]” was the template applied. There were few, if any, tangible responses to the sharp questions posed by the Lords.
Where does this leave contractors? Has progress been made, considering how supportive the Lords turned out to be for limited company contractors and their lifestyle and business choices? Frustratingly, it seems not.
HMRC has the full support of the government to fulfil a number of tasks to respond to the Lords’ recommendations. These include largely implementing a ‘business as usual’ approach. Nowhere does the response acknowledge that IR35 may well cost far more than it generates in tax yield. Nor that IR35’s current implementation is not working.
The government has chosen to rely on the current review of IR35’s administration being conducted by the IR35 Forum. That’s a body that appears to have achieved little since its formation in May 2011. The Lords’ recommendation to widen stakeholder engagement via the forum implies that it recognises the limitations of the forum in its current form.
The arguments the government has put forward to support the continued implementation of IR35 are underpinned by the annex to its response called ‘Estimating the cost of abolishing IR35’. These are essentially the same arguments put forward by HMRC that were systematically discredited throughout the Lords’ evidence-gathering sessions.
This September, it will be fifteen years since IR35 was introduced. During its turbulent history, few non-government or HMRC stakeholders have credited the tax legislation as having succeeded with its original aims.
The government’s refusal to acknowledge IR35’s flaws despite the work of the Lords’ inquiry consigns contractors to a further period of tax uncertainty and facing the threat of costly, stressful, and ultimately unnecessary IR35 investigations.