APSCo responds to House of Lords - Review of Personal Service Companies
One of the recommendations was that HMRC carries out and publish a detailed assessment of the current Exchequer protection figure – and of the costs that taxpayers incur when dealing with IR35. The Government says that it is confident that the figure quoted for Exchequer protection from IR35 and the methodology used in the calculation of that figure, is robust. However, the Government acknowledges that it could further clarify and amplify how IR35 figures have been calculated and has said that it will publish an updated administrative impact assessment during the Autumn.
Commenting on this, Hurley said, “We’re concerned that HMRC’s amplified calculations are based on figures which appear to be quite old (2008/9 and 2010/11), and that there appears to be a good deal of guess work involved, particularly around salary levels and the behaviour of company directors. However, we’re encouraged that HMRC has promised an updated administrative impact in the Autumn.
The Government has also said that it recognises that many individuals choose to work through Personal Service Companies and that it appreciates the positive contribution people working for themselves can make to the economy. However it is also concerned that people can use intermediaries to disguise what would otherwise be employment income. It says that the IR35 legislation seeks to ensure appropriate taxation and tackles avoidance. However it does concede that the tax system should continue to recognise the additional risk taken by those who are genuinely in business for themselves.
Hurley continued, “We welcome HMRC’s continuing confirmation that it appreciates the positive contribution to the economy by those working for themselves, and that such additional risk should be recognised in the tax system. APSCo will continue to engage with HMRC through our membership of the IR35 forum to help raise awareness of the professional sector, which so often suffers unintended collateral damage when otherwise laudable legislation is put in place to protect the vulnerable.”
The Government has, at the request of the Select Committee, also looked at ways in which income tax and National Insurance could be more aligned but says that since employers are already adjusting to a significant number of reforms to payroll systems, it will wait for further progress on planned operational changes to the tax system before considering further changes.
Hurley concluded, “We welcome the Government’s decision to wait before making radical changes to the tax and national insurance system, as we believe businesses, particularly in the recruitment profession, are already struggling to keep up with the numerous and burdensome changes in legislation introduced in recent years.
APSCo continues to engage with HMRC through its work on the IR35 Forum, which is currently undergoing a review of a number of aspects of HMRC’s compliance activity regarding IR35, including the relevance and on-going effectiveness of the Business Entity Tests, the Contract Review Service, and HMRC’s IR35 guidance.”