Labour wades in to delayed IR35 appeal

UK politicians are taking more interest in the government's controversial IR35 rules ahead of the latest legal clash between the Inland Revenue and opponents of the tax.

At a debate last week, the paymaster general, Dawn Primarolo, was questioned by Labour MP David Drew about IR35 -- which treats some self-employed contractors as employees, rather than businesses, for tax purposes.

Primarolo indicated that there is no chance of the government changing one of the most hated aspects of IR35 -- that self-employed workers affected by the tax are entitled to a tax deduction of only 5 percent on their income. This 5 percent flat rate deduction is to cover expenses -- but many consultants claim that this simply won't be enough to allow them to finance training costs.

The Inland Revenue claims that IR35 is intended to catch tax evaders who pass themselves off as separate companies -- thus guaranteeing they are taxed at a lower rate -- while effectively working as an employee for one firm. Because of this, the government believes the 5 percent expenses deduction is fair.

"Employees who pay for their own training are not in general entitled to a tax deduction for this expense," said Primarolo. "Individuals affected by the 'service company' legislation are in a similar position. However, they are entitled to an additional 5 percent flat rate deduction for expenses on top of all the other expenses normally available to an employee, which they can use to provide for their training needs if they so wish."

IT contractors claim that it is unreasonable of the government to expect them to keep up with the latest technology out of this 5 percent allowance alone -- and many have threatened to leave the UK at a time when there are serious worries about shortages of skilled IT workers.

Primarolo also admitted that the chancellor, Gordon Brown, has never spoken to anyone from the Professional Contractors Group (PCG). The PCG has been at the forefront of the battle against IR35, and lost a high court challenge against the Inland Revenue back in April. The appeal against that ruling is now due to be heard on 4 December, having been postponed from its earlier date of 19 November.

Contractor news site Shout99, in an editorial, said Drew's questions are an indication that Westminster MPs are taking more notice of IR35. Shout99 and the PCG have been encouraging those affected by IR35 to lobby MPs with their concerns. Both the Conservative Party and the Liberal Democrats oppose the tax.

The increased interest from MPs may be at least partly attributed to the effective email campaign by contractors eager to gain support. At a recent meeting of the Hansard Society, Barbara Follett MP said: "The IR35 campaign was mainly done by email, and coordinated email campaigns such as this are extremely effective."

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