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Ten years of ‘harm’ caused by IR35 tax, says group

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The tenth anniversary of IR35 tax rules has been marked by a call to abolish the legislation.

The Professional Contractors’ Group (PCG), a body representing freelance workers and contractors, has described IR35 as damaging to the economy and has urged the regulation to be scrapped.

The IR35 rules were introduced to stop professional workers from drawing income in the form of a small salary and large dividends from their limited companies, where ordinarily they would be paid a standard salary for performing the same role if they were not working via their own limited company.

The government claimed that such workers were avoiding paying tax and national insurance contributions as a result of working via personal service companies.

However, the PCG has argued that the measures have only served to harm business.

Chris Bryce, the PCG chairman, said: “PCG was formed by passionate and far-sighted freelancers who instantly recognised the harm that the IR35 proposal would inflict.

“Ten years on, they have sadly been proved right, and the unfairness of this measure remains evident. In these times of economic difficulty, the government should be doing everything it can to remove barriers to enterprise – this must include the abolition of IR35.”

The PCG went on to claim that freelancers and contract workers face a perpetual threat of a costly HMRC investigation under IR35, that IR35 obliges contractors to spend time and money assessing their status that could otherwise be devoted to their business, and that the government itself has acknowledged that it is unable to implement IR35 fully.

While conceding that ‘disguised employment’ is a problem, the PCG said that the answer lies in employment law, not tax law, and in a way that recognises that freelancers are in business on their own account and are not, therefore, disguised employees.

The PCG added that there is no evidence that IR35 is raising any money for the exchequer, and said that ministers have stated that they cannot distinguish between IR35 and other PAYE compliance work by HMRC.