In a joint letter to the Financial Times, the Confederation of British Industry, the Federation of Small Businesses and the Professional Contractors' Group have made a final appeal to the Government to draw back from the Inland Revenue's IR35 proposals to tax many self-employed professionals as if they were employed if they supply their services through a 'personal service company', calling the measure "unfair, poorly targeted and ultimately unworkable".
Representatives of small business believe that Treasury Minister Dawn Primarolo based the measures on discussions with larger companies who would of course benefit from anything that damages small, entrepreneurial companies. Primarolo's belief that entrepreneurs are unlikely to leave the country because of the measure, they say, is already being belied by an increase in work permit issuance as employers are forced to replace UK workers who have left the country rather than face the full rigour of the IR35 scheme.
Speakers at a conference last week entitled 'Tax Planning for Owner-Managed Businesses', as might have been expected, came out universally against the new regime. As to living with the new situation, if it came to that, there seemed to be a consensus that the most important principle in deciding whether self-employment existed was going to be the question of substitution. However, taking into account recent cases, it probably wouldn't be enough to be able to make limited substitutions, it would have to be a pervasive feature of the arrangement.
Despite this new attack on the IR35 proposals, there is little
sign that the Government will give way. A Treasury official said:
'The government is pushing ahead with this and we are not going
to be put off by threats that workers will go abroad. There is
not a great deal of evidence that this is happening and other
countries have their own legislation closing the loophole."
The Opposition has promised to oppose the the new IR35 rules, but have stopped short at promising to repeal the legislation.
The text of the letter:
From Mr Digby Jones, Mr Ian L. Handford and Mr Gareth Williams.
'Sir, As representatives of industry and small businesses, we would urge the government to reconsider the IR35 measure, currently before parliament in the Finance Bill 2000.
'This legislation, which will treat small businesses as employees for tax and NIC purposes, will prove detrimental to the small business sector, the knowledge-based economy and the UK's drive to lead the world in high-technology. The legislation will also discourage entrepreneurs to remain UK-based taxpayers.
'While we support the government's attempts to create a fair taxation system and support measures to crack down on blatant abuse, the IR35 provision is unfair, poorly targeted and ultimately unworkable. We would call on the government to draw a halt to this, while there is still time to do so and, to consider a better way forward.
Digby Jones, Director-General, Confederation of British Industry Ian L. Handford, National Chairman, Federation of Small Businesses Gareth Williams, Chairman, The Professional Contractors Group
.
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