In response to criticism by the House of Lords Select Committee on personal service companies, HMRC has issued a report (see www.bit.ly/1xeS2XO) justifying the IR35 legislation, saying that the cost of its abolition would be £550m and that if the anti-avoidance rule, which has been in place since 1999, was scrapped it could see an estimated 55,000 employees going freelance to save tax.
However, the Association of Independent Professionals and the Self Employed (IPSE) has criticised HMRC’s latest attempt to justify IR35 and has called instead for a freelancer limited company structure which would be ‘fairer and less complex’.
Simon McVicker, IPSE’s director of policy and external affairs, said: ‘We have always maintained that HMRC’s claimed cost to abolish IR35 is completely inaccurate and the calculations presented in HMRC's report do nothing to change our view. They appear to be based on huge assumptions about individual behaviour and thus we believe this figure is difficult to rely on with any confidence.
‘HMRC also claim the annual administrative burden on businesses is £15.9m but this is a wild underestimation. In 2009, Oxford Economics said the average cost of IR35 admin for a business was £853. If you apply this to HMRC’s own estimation that it affects 200,000 limited company contractors, this would put the figure at a whopping £170m.
‘In any case, IR35 is a nightmare administrative burden for freelancers up and down the country. It’s deeply unfair, overly complex and small business owners continue to be unsure of what their IR35 status is. In our recent manifesto, we call for a freelancer limited company structure within the tax system. This structure would be fair, transparent and for those who decide to opt into it, would make IR35 redundant. Instead of attempting to justify a flawed policy, we hope HMRC will instead give serious consideration to our sensible proposal for a freelancer limited company.’
In response to criticism by the House of Lords Select Committee on personal service companies, HMRC has issued a report (see www.bit.ly/1xeS2XO) justifying the IR35 legislation, saying that the cost of its abolition would be £550m and that if the anti-avoidance rule, which has been in place since 1999, was scrapped it could see an estimated 55,000 employees going freelance to save tax.
However, the Association of Independent Professionals and the Self Employed (IPSE) has criticised HMRC’s latest attempt to justify IR35 and has called instead for a freelancer limited company structure which would be ‘fairer and less complex’.
Simon McVicker, IPSE’s director of policy and external affairs, said: ‘We have always maintained that HMRC’s claimed cost to abolish IR35 is completely inaccurate and the calculations presented in HMRC's report do nothing to change our view. They appear to be based on huge assumptions about individual behaviour and thus we believe this figure is difficult to rely on with any confidence.
‘HMRC also claim the annual administrative burden on businesses is £15.9m but this is a wild underestimation. In 2009, Oxford Economics said the average cost of IR35 admin for a business was £853. If you apply this to HMRC’s own estimation that it affects 200,000 limited company contractors, this would put the figure at a whopping £170m.
‘In any case, IR35 is a nightmare administrative burden for freelancers up and down the country. It’s deeply unfair, overly complex and small business owners continue to be unsure of what their IR35 status is. In our recent manifesto, we call for a freelancer limited company structure within the tax system. This structure would be fair, transparent and for those who decide to opt into it, would make IR35 redundant. Instead of attempting to justify a flawed policy, we hope HMRC will instead give serious consideration to our sensible proposal for a freelancer limited company.’
