House of Lords report leads to calls for IR35 suspension

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By Jonathan London on 7th July 2014

House of Lords report leads to calls for IR35 suspension

The House of Lords Select Committee, who have been consulting on Personal Service companies and the effectiveness of IR35 in policing UK contractors and freelancers, have today published their report. In the surprising findings, 11 of the 16 recommendations which come out of the report are aimed directly at HMRC.

The report describes the Government’s anti-avoidance legislation (otherwise better known as IR35) as ‘complex’ whilst also directing criticism at HMRC for not knowing enough about how many workers it affects or how much revenue was at risk. It also calls into question HMRC’s estimates of £550m in Tax and National Insurance contributions which would be lost should IR35 be abolished or suspended, with this figure described as an estimate which was not, directly substantiated by any publicly available information.

Business Entity Tests also come under the spotlight, with the committee advising a full review, whilst also pushing for wider changes to the convoluted UK tax system.

The report findings have led to calls from industry bodies, including the Professional Contractors Group (PCG), for IR35 to be suspended. Chris Bryce, CEO of PCG said:

The conclusion of the Committee is that abolition or suspension of the IR35 legislation, whilst attractive, would be unwise if HMRC can prove it provides Exchequer protection to the tune of £550million.  The simple fact is, HMRC cannot do so. PCG has repeatedly asked HMRC to justify the £550m figure and the so-called ‘deterrent effect’ but HMRC has been unable or unwilling to do so. It is now clear from the findings of the House of Lords Select Committee that the effectiveness of this legislation and the justification for its continued existence is built on smoke and mirrors.

We are calling for IR35 to be suspended while proper consideration is given to its abolition. Removing this unnecessary legislation will allow the UK’s flexible workforce to do what they do best and boost British business. The Government has refused to listen to the cries for help from the hundreds of thousands of contractors, freelancers and independent professionals blighted by IR35, but they cannot ignore the findings of the Committee.

The government is expected to respond to the report within two months with a debate in the House of Lords to follow.

<a href=”” target=”_blank” rel=”nofollow”>The full report is available here.</a>

<a href=”” target=”_blank” rel=”nofollow”>The committee’s conclusions and recommendations are here.</a>

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