House of Lords Select Committee questions government response to PSC report

Wednesday 2 July 2014

Following the release of the government response to the recent personal service company consultation, the House of Lords Select Committee has now given its verdict on the coalition's position.

Citing an outside response claiming that the government's statement looks as though it has been written as PR, the committee declared that not much action has come out of the report.

"I cannot pretend that the government's response to any of our recommendations was encouraging," Baroness Noakes, chair of the committee, wrote. "I do not think that the Treasury has shown any interest in finding out the full extent of the use of intermediaries or indeed in compliance with the government’s own rules."

The House of Lords' response went on to reiterate its questions over whether the tax system is fit for purpose, explaining that it grew out of an era where freelancers and contractors weren't the norm.

"In this country we tax sources of income, and there is a sharp distinction between employment income, trading income and other sources of income. The world of work has many shades of grey in it, but they have to be fitted into our tax system. Successive legislation has taken many of those grey areas, which are not employment in a contractual or general law sense, and treated them as deemed employment. IR35 is part of that theme," Baroness Noakes explained.

The House of Lords Select Committee on Personal Service Companies had hoped to create a series of recommendations for the government that would change this dynamic, but the coalition - while acknowledging the shortcomings of IR35 - has maintained its existing position on the legislation.

One of the recommendations was that the government should create a guide on the difference between employment and self-employment, to which the government responded that such a thing already existed online. However, the committee claims that such a guide needs to be available on multiple platforms as not all that need it will interact with it online.

The second recommendations is that the Low Pay Commission should be asked to look at the use of intermediary companies for the low paid. The government has yet to confirm whether they will do this.

Furthermore, the committee claimed that HM Revenue and Customs should take more enforcement action against those that abuse expenses dispensations and ensure that these should only be granted when appropriate. While the government has said it will look into dispensations, the committee claims that turning them into exemptions won't solve the problem.

Nonetheless, the government's response to the report on personal service companies has given greater certainty for contractors, which can only be welcomed.

Carl Henning, senior solicitor at Brookson Legal Services, said: "IR35 isn't perfect but the government's response drew a line under the issue after month's of uncertainty. At Brookson we were pleased that officials recognised the shortcomings of the legislation but the focus now needs to be giving some certainty for contractors so they can ensure they comply."

By Victoria McDonnell

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