Still time to call a halt on this damaging tax legislation

From:
Mr Digby Jones, CBI
Mr Ian L. Handford, FSB, and
Mr Gareth Williams, PCG

To:
Letters Page, Financial Times.

7th July, 2000

Sir,

As representatives of industry and small business, we would urge the government to reconsider the IR35 measure, currently before parliament in the Finance Bill 2000.

This legislation, which will treat small businesses as employees for tax and NIC purposes, will prove detrimental to the small business sector, the knowledge-based economy and the UK's drive to lead the world in high technology. The legislation will also discourage entrepreneurs to remain UK-based tax payers.

While we support the government's attempts to create a fair taxation system and support measures to crack down on blatant abuse, the IR35 provision is unfair, poorly targeted and ultimately unworkable. We would call on this government to draw a halt to this, while there is still time to do so, and to consider a better way forward.

Digby Jones, Director-General, Confederation of British Industry; Ian L. Handford, National Chairman, Federation of Small Businesses; Gareth Williams, Chairman of The Professional Contractors Group.

Scanned copy of letter in Financial Times

In addition to the letter the FT ran the following article:

Business in plea over tax rules for IT consultants by Rosemary Bennett, political correspondent

Business groups have joined forces for one last push to persuade the government to change its mind over the IR35 tax rules covering information technology consultants.

A joint letter from the Confederation of British Industry, the Federation of Small Businesses and the Professional Contractors Group in today's Financial Times urges Ministers to halt the measure, which they say will damage efforts to build a world-beating high-technology economy.

"This legislation, which will treat small businesses as employees for tax and National Insurance purposes, will prove detrimental to the small business sector, the knowledge-based economy and the UK's drive to lead the world in high technology," the letter says.

"The legislation will also discourage entrepreneurs to remain UK-based taxpayers. Whilst we support the government's attempts to create a fair taxation system and support measures to crack down on blatant abuse, the IR35 provision is unfair, poorly targeted and ultimately unworkable."

The final pieces of legislation covering the changes are passing through parliament in the Finance Bill.

Ministers are adamant the measures are necessary to plug a loophole.

"The Government is pushing ahead with this and we are not going to be put off by threats that workers will go abroad," said one official. "There is not a great deal of evidence that this is happening and other countries have their own legislation closing the loophole."

Under the new rules, consultant contractors whose work patterns are judged to be those of an employee rather than a 'genuine' contractor will have to pay normal income tax and national insurance contributions.

Although the Government has dismissed talk of a high-tech 'brain-drain' of IT consultants, it has issued more work permits to computer experts from overseas. The Conservatives have promised to make the IR35 change and other new commercial taxes the centrepiece of their attack on Labour as anti-business at the next election. They have promised to reverse the change, which they describe as a 'new wealth tax on entrepreneurs.'

Scanned copy of article in Financial Times