Lords Select Committee examining IR35 effectiveness

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By Jonathan London on 26th November 2013

Lords Select Committee examining IR35 effectiveness

A House of Lords Select Committee will look into contractor limited companies to find out if such businesses are being established in order to avoid paying taxes, and to determine to what extent the IR35 tax legislation is doing its job.

The committee’s chairwoman, Baroness Noakes, said the inquiry will examine how often personal services companies are set up and what are the implications of this regarding taxation and National Insurance and a number of other issues. The inquiry will consider the viewpoints of both personal services employers and their employees.

House of Lords committee review IR35 effectiveness

It seems that although the committee has listed the main issues it will look into, the main purpose of the inquiry will be to establish whether contractor firms are being used to avoid tax, ContractorCalculator website reported. Noakes said that times are hard and the government needs to collect all the taxes that are rightfully owed. At the same time, she added, the inquiry would seek to make sure that the tax burden laid on people is not too heavy, but she admitted that it is a complicated matter.

Among the issues listed by the committee were the extent to which personal services firms are being used to provide services to the UK business sector as well as their use in the public sector and whether the people who provide such services should be allowed to use them. The select committee will also examine how effective the IR35 legislation has been so far and if guidance assisting people to judge the status of business transactions for themselves is sufficient or HM Revenue and Customs needs more resources to ensure compliance.

However, what is evident from the committee meeting, which was held yesterday, is how unsuccessful the strengthened IR35 enforcement has been in generating revenue for the Exchequer. HMRC has revealed that just 122 IR35 cases have been opened to date in the 2013-14 tax year, with the inspector team targeting 250 new inquiries every tax year. A total of 256 cases were opened in 2012-13.

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