What is the IR35?
This campaign is the one that is of most
importance to members at the present time. It is the campaign
that founded the PCG and will remain the centre of our attention
for the foreseeable future.
According to the Inland Revenue website:-
‘The purpose of the proposed new
rules is to remove opportunities for the avoidance of
tax and Class 1 National Insurance Contributions (NICs)
by the use of intermediaries, such as service companies
or partnerships, in circumstances where an individual
worker would otherwise be an employee of the client or
the income would be income from an office held by the
In reality, the proposals will catch
any limited company worker (or similar intermediary) who
is working for a client but who does not meet the outdated
definition of self-employment.
As a result of extensive lobbying by
the PCG and other groups the original proposals were modified
and published by the IR on the 23rd September.
The PCG see three main problems with
In the first instance, independent contractors
must determine whether they and their companies are subject
to IR35 or not. To clear the IR35 barrier both the personal
circumstances and the current contract must reflect self-employment.
The uncertainty created by the implementation of the legislation
is a significant burden on those businesses that may or
may not fail the tests. This goes against the Government’s
wishes to create a favourable regulatory environment for
business in the UK.
Secondly the IR35 legislation will prevent
the Limited company from retaining profits in the business,
which can then be used at a later date to grow the business.
This goes against the Government’s wishes to create a more
entrepreneurial business environment.
Finally, the implications for most independent
contractors caught by IR35 are financial. Tax and NI costs
are likely to double, meaning that post tax income will
fall by about 20% to 25%. Contractors will need to increase
rate by over 30% to compensate. This goes against the Government’s
wishes to create a stable, inflation free economy.
The Government has repeatedly claimed that these rules were
the subject of an extensive consultation exercise. They
cite the thousand of pieces of mail as evidence of this
However the PCG strongly believe that
this consultation was a sham. The PCG made a submission
to the process but the Government simply did not take heed
of our concerns. PCG members wrote to their MPs complaining
that Independent Contractors were not being given an adequate
hearing and as a result the PCG were invited to a meeting
with the Revenue in September 1999. Far from being consulted
at this meeting the PCG were simply told about changes to
the new rules.
The original proposals were a disaster
for the business sector, for both Independent contractors
and their larger competitors. The revisions made in September
lessened the effect on “Big Business” and put the onus solely
on the small, Independent Contractors. In addition, the
changes made throw doubt on the Governments originally stated
aims. It is now possible for businesses to continue evading
their employment responsibilities, by taking on staff but
disguising their employment through an intermediary. In
fact the new legislation unwittingly encourages this practice.
However, the rules also hit the self-employed Independent
Contractor and fledgling consultancy companies.
PCG activities, Past, Present and
Despite the lack of consultation, the PCG’s actions have
largely been responsible for IR 35 becoming a major issue
for the Government and its political managers. Although
the size of the Government’s majority has made it difficult
to affect changes to the proposals, there have been significant
changes as a result of the debate started by PCG. For example,
recognition that an investment in training is, for a knowledge
based contractor, a valid investment and as much of a financial
risk, as a major investment in plant is for a traditional
self employed worker.
PCG has lobbied hard on behalf of the
contractor members – both with Government ministers, with
Opposition leaders and in the Lords. In addition, PCG has
raised the debate through a high profile press campaign.
We have members in over 90% of constituencies and have set-up
lobbying procedures to help members contact their MPs. The
Times described our Internet based campaign as “unprecedented”.
More importantly, PCG members have set
up a legal challenge fund and we are using a top legal team
to look at having the legislation struck down.
More than one year on since the IR35 announcement
we know that many MPs still do not understand the implications
of the proposals. PCG members should use the IR35 lobbying
information and Forum board to find the latest information
on how they can best add their voice to the campaign. The
PCG will continue with its endeavours to educate members