The Professional Contractors Group does a sterling job of reminding all of us in the contracting sector that IR35 is iniquitous and must be abolished. In fact, considering repealing IR35 is their key raison d’être, this is as it should be.
However, the debate has gathered considerable momentum in the last month, arguably prompted by AccountingWeb editor Rebecca Benneyworth’s article 'IR35 – time to go?’. It was then whipped into a frenzy by LibDem MP Lorely Burt’s Early Day Motion, strung along by a series of increasingly incendiary press releases by PCG and then sunk like a stone by Chancellor Alastair Darling’s Budget.
Are we surprised? Did anyone seriously expect HM Treasury to take the slightest notice?
IR35 nets the Treasury a significant amount of income tax and National Insurance Contributions (NICs). Yes, its true and you just have to look at Parasol Group as an example of just one, albeit probably the largest, of over around 120 serious umbrella companies, that aggregates the tax liabilities at source of an average of 10,000 contractors and has paid HMRC in excess of £100m in income tax and NICs in the last 12 months. How many of those contractors would be running their own limited company if not for IR35?
Contractors and our representatives might not wish to acknowledge it, but the unpalatable questions to answer is:
'If IR35 is doing an OK job of netting a respectable amount of tax from a constituency of freelance and contractor workers, most of whom are probably highly unlikely ever to vote for the Labour Party anyway, why change it?'
Add to that the additional tax revenues HMRC earns from employees in the massive industry of IR35 ‘suppliers’ that has sprung up to ‘service’ the contracting community, and you can see that it would be a brave Chancellor (of any political party) who would choose to abolish IR35.
In Benneyworth’s highly credible and valiant attempt to stimulate debate to find a solution, no one has yet to come up with a credible replacement that satisfies the needs of all stakeholders. And remember, the government, on every citizen’s behalf is a stakeholder, too, and its needs are taxes.
If you were the Chancellor, would you abolish IR35? Could you abolish IR35?
There is a caveat to this debate, and this is where things could get interesting. Until the new Tax Chambers came into existence earlier this month, it was the contractor and often their insurers who had to bear the costs of an investigation, whether they won or lost.
The Tax Chambers will have some powers to award costs, so it could start to become rather expensive for HMRC to sustain its high volume IR35 campaign against contractors. So far, the taxman’s pursuit of contractors has been largely ‘free’, and that may no longer be the case.
Maybe a future Chancellor might give some serious thought to replacing IR35. But until others, including the PCG, can come up with credible alternatives, it would seem that this awful tax legislation is here to stay – no matter what colour the rosette of our next Prime Minister.