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Contractor group calls on Chancellor to scrap IR35

Published on Nov 9, 2009 |

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In its submission to the Chancellor ahead of the much-anticipated Pre-Budget Report, the PCG has called for IR35 and other restrictive measures to be scrapped in the interests of the economic recovery.

Repeal IR35

The contractors' group points out that there is much debate over whether IR35 actually benefits the Treasury at all:

"We know from past statements by ministers that IR35 is not known to be a revenue-raising measure: it is not at all clear that such monies as it raises in extra tax offset the considerable expenditure by HM Revenue and Customs in pursuing the many fruitless enquiries known to us."

In addition, many contractors are very uncertain over their IR35 status, as they are unable to self-assess their tax liabilities with any confidence. In fact, when asked what were the biggest problems facing the contractor marketplace at the moment, IR35 comes second only to the crippling effects of the downturn in a recent survey of the PCG's members.

Not only are tax investigations costly and stressful, but in most cases, the contractors involved are found to owe no tax whatsoever:

"IR35 investigations frequently take over 5 years to complete, indeed 46% of those surveyed who had been investigated found this to be the case, clearly an unacceptable figure, especially considering that in the vast majority of these cases, no additional tax was found owing.

Income shifting delay

In addition to its main IR35 message, the PCG also congratulated the Government's decision to delay the introduction of the income shifting legislation, but suggested that the proposals are dropped completely.

Sole Trading

The Group also noted that many freelancers would like to set up in business as sole traders, but are unable to do so - principally due to the tax rules in place which makes it impossible for recruitment agencies to pay freelancers gross unless they work under a company structure (s44-7 Income Tax (Earnings and Pensions Act) 2003. Again, the PCG has called for this measure to be abolished.