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Contractors stuck with IR35: Government’s response to the Lords’ PSC inquiry

Contractors will continue to be subject to IR35, regardless of the harsh criticisms levelled at the tax law by the House of Lords’ Select Committee on Personal Service Companies (PSCs). This is according to the government’s response to the Lords.

The government has also surprised many by brushing aside the evidence to suggest that that the sums HMRC uses to calculate the value of IR35 to the Exchequer are “robust”. These figures were strongly challenged both by the Lords and by independent experts giving evidence to the inquiry.

“I’m astonished that the government supports HMRC’s questionable methodology for calculating the ‘exchequer risk’ of IR35,” says ContractorCalculator CEO Dave Chaplin. “But I’m not surprised that the government proposes to do nothing in response to the inquiry.”

Chaplin believes that the government hides behind the work of the largely ineffectual IR35 Forum in its response to the Lords’ recommendations, citing that many of the changes the Lords recommended are currently a work in progress.

“The IR35 Forum has been in existence since May 2011 and it is difficult to assess how the body has benefitted contractors over the last three years,” says Chaplin. “We’ve been waiting for the forum to evaluate the impact of HMRC’s new framework for administering IR35 – introduced in May 2012 – since August 2013.

“Furthermore, HMRC has repeatedly refused to share the performance statistics of the business entity tests and other measures of IR35’s enforcement, despite being subject to multiple Freedom of Information Act (FOI) requests from ContractorCalculator and others.”

Chaplin’s frustration with the government’s response stems from the poor quality of the underlying assumptions used to calculate IR35’s value as a tax-raising mechanism: “You could comfortably drive a coach and horses through the ‘behavioural’ assumptions used to evaluable IR35’s exchequer risk.”

He concludes: “Here we have a government that is allegedly pro-small business that persists in punishing with unproven tax legislation those very people and enterprises who choose to take risks and run their own businesses.”

Published: 10 June 2014

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