Limited company contractors may benefit from the House of Lords Select Committee on Personal Services Companies (PSCs) inquiry into “the consequences of the use of personal service companies for tax collection”.
“From the questions asked of HMRC, it appears the Lords are focusing on its new approach to IR35 and how it is working,” says PCG director of policy and public affairs Simon McVicker. “The Lords committee could hold HMRC, and the government, to account in a way that the IR35 Forum could not.”
The IR35 Forum is reviewing the effectiveness of the new framework introduced by HMRC in May 2012, and McVicker believes that the Lords’ inquiry is well timed: “The evidence presented during the HMRC evidence session confirms that it lacks the facts and figures on the implementation of IR35 since May 2012. We keep asking for this data in the IR35 Forum.
“HMRC’s response is to say that it does not collect this data because it is not a statistics gathering organisation, and when Lord Myners challenged HMRC over this during its evidence giving, it was clear he was not happy with the answer provided.”
PSC inquiry instigated by Lord Myners to review IR35
Although the inquiry is chaired by Baroness Noakes, an accountant and former president of the Institute of Chartered Accountants of England and Wales (ICAEW), it is believed that Lord Myners instigated the inquiry.
IR35 has not been debated by politicians for some time and it is thought that, as a known advocate of anti-tax avoidance measures, Lord Myners’ motive may be to ask whether all the effort and resources expended on enforcing IR35 is worth the money.
“The Lords has no input into tax legislation, which is the distinct role of the Commons,” continues McVicker. “However, a Lords select committee can make recommendations about the operation of government and the civil services, which includes HMRC.”
The result of the PSC inquiry could be to recommend changes to the way that IR35 is administered, which may potentially be of great benefit to contractors. McVicker adds a note of caution, though: “The government can, of course, choose to ignore any recommendations.”
What the first evidence sessions tells contractors
McVicker highlights that the Lords’ questioning of HMRC was focused on determining some ideas of a return on investment: “What the committee was trying to do with its questions is to work out the cost of running the IR35 compliance operation.
“All those specialist teams are not doing that much work. There is a contract review service that is rarely used and a helpline that is taking a tiny number of calls. And HMRC is unable to fully explain the tax yield it believes the compliance of IR35 generates.
“This begs the question of whether there are areas of tax avoidance where these resources could be better applied.”
The future direction of the inquiry
The next session will be taking evidence on Monday 2 December 2013 from Bauer & Cottrell’s Kate Cottrell, the Association of Chartered and Certified Accountants (ACCA), the Chartered Institute of Taxation (CIOT) and others, to be confirmed.
McVicker confirms that PCG CEO Chris Bryce has been called to give evidence to the committee on Monday 16 December, alongside representatives from the Association of Professional Staffing Companies (APSCo), the Federation of Small Businesses (FSB) and the Freelancer and Contractor Services Association.
“The evidence PCG presents on 16 December will be supported by a full written submission in which we will draw attention to the surveys and analysis we have conducted, including our analysis of the effectiveness of the business entity tests (BETs).
McVicker concludes: “This inquiry has opened the door for PCG to present its own statistics, and to deploy our research and engage positively in a parliamentary forum.”