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PCG seeks candidates' views on business tax

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19th Apr 2005
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The Professional Contractors Group has called for the abolition of the IR35 legislation and a "reversal" of HMRC's stance on taxation of "ordinary husband-and-wife companies".

The PCG said it is asking all parliamentary candidates for their views on a range of issues affecting freelance workers. The questions are based on a recent telephone survey of 186 PCG members, in which half the respondents said they wanted IR35 to be abolished and another 40% wanted it reformed.

Nearly three quarters of respondents wanted a statutory right to "abdicate" employment rights and declare self-employment status, in return for the more favourable tax treatment afforded to the self-employed.

PCG chairman Simon Juden said government policies on taxation, employment status and public sector procurement need to reflect a growing trend towards freelancing and flexible working.

The PCG provided the following "policy suggestions":

  • Abolition of IR35: "The so-called 'IR35' legislation declares that legitimate, risk-taking businesses are in fact providers of 'disguised employees' and taxes them accordingly. PCG calls for the complete abolition of this legislation."

  • Creation of a statutory right to self-employment: "People who declare themselves self-employed would be able to abdicate their employment rights & associated benefits in exchange for the ability to reap the rewards of their own labour on their own terms, without state interference and while paying a level of tax that reflects the economic risk to which they are exposed."

  • Reversal of HMRC's current stance on section 660A: "[HMRC] has attempted to use the settlements legislation to target ordinary husband-and-wife companies. PCG calls for this to be reversed and the principle of independent taxation to be respected."

  • Amendment of the reforms to section 447 of the ITEPA [2003]: "In the recent Budget, the Chancellor moved to give the Revenue latitude to tax people whenever it feels avoidance has taken place by amending s447 of the ITEPA. While the measure may not be intended to attack small businesses we fear that it could be used to do so at some time in the future. This is the kind of uncertainty that should be eliminated from the tax system, not multiplied."

Measures to counter avoidance in relation to employee securities, by means of changes to Part 7 of the Income Tax (Earnings and Pensions) Act 2003, were included in the original Finance Bill published on 24 March.

The draft proposals were criticised by the major tax bodies, who claimed that they went further than necessary to counter avoidance and could lead to retrospective double taxation of dividends.

The measures were among the anti-avoidance provisions dropped from the Bill following the announcement of the general election, and are not included in the Finance Act 2005, which received Royal Assent on 7 April.

But ministers indicated that they intend to reintroduce a package of anti-avoidance measures if re-elected.

The PCG also called for "continued restrictions" on work permits for workers in sectors where the UK "already possesses an adequate skills base"; promotion of UK businesses as they face increasing competition from abroad; and greater use of small businesses in government procurement.

Andrew Goodall
Editor, TaxZone

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