The IIM has submitted a detailed response to the House of Lords Select Committee on PSCs enquiry.
Until the IIMs document has been made public by the Select Committee we are making the full submission available as an IIM member reserved resource, though a short summary of the IIM’s response is given below:
Summary of the IIM response
- The IIM strongly supports the notion of fairness, stated by the Chancellor:
“The government strongly supports enterprise and those who choose to work for themselves, and believes that the tax system should continue to recognize the additional risk someone who is genuinely self-employed takes on.”
Limited company structures are the correct way to allow self-employed specialists to balance the risk and reward of operating as a targeted business resource at a specific point in time.
- There is anecdotal evidence is that IR35 is largely ineffective and inefficient. Importantly, the IR35 rules do not reflect the underlying reality of the freelancer risk/reward model.
- There is a distinction in tax law between employment and self-employment, and incorporation should not be used to disguise employment. Nevertheless, IR35 is a blunt instrument that should ideally be replaced, perhaps by a straightforward genuine self-employment certification process.
- IR35 is pervasive, introducing complexity, doubt and the costs of professional advice, overlaid with administrative/regulatory burdens and the threat of investigation.
- The IR35 Forum should have a wider stakeholder membership and more apparent signs that what is discussed and proposed is actually taken on board by HMRC.
- Placing responsibility on clients to decide if a business transaction falls within IR35 would neither be a cost efficient solution nor an appropriate way to judge tax status.
- We can see no evidence of IMs being in any way forced into using the PSC structure. They choose this structure as that appropriate to their business model.
- We believe that PSCs are still used extensively in the public sector and that to prohibit their use would impair the sector’s ability to obtain the skills and expertise it requires. That said, Government departments need to understand when the use of off-payroll staff is appropriate, and when staff should be on the payroll.