Lords e-commerce report tells Government to keep IR35 under review
A wide-ranging House of Lords report has warned the Government to keep the operation of IR35 under review amid fears that it will impede the development of new e-commerce companies.
The Select Committee report E-Commerce: Policy Development and Co-ordination in the EU supports the concerns held by many contractors and their representative body, the Professional Contractors Group.
The House of Lords (paras 288/289) report said: "IR35 is a tax regulation which was introduced to counter a situation in which in some companies employees were re-designated as self-employed sub-contractors even though the nature of their work had not changed. Unfortunately, the regulation affects the genuinely self-employed entrepreneur too. e-Commerce depends to an increasing extent on skilled and creative practitioners. There is already a shortfall in the numbers of such people, both in Europe and in the United States. Nations are competing to attract and to hold these skilled people. The Government's imposition of IR35, which strikes directly at the self-employed IT specialist, lowers the attractiveness of the United Kingdom as a market for such skills.
"We recommend that the Government keep under review the operation of IR35 so as not to impede the development of new e-commerce companies."
Earlier this year, the Select Committee took evidence from interested parties, including the PCG who submitted a detailed paper explaining how IR35 would undermine any positive initiatives in this sector. The PCG's evidence concluded: "IR35 will not deliver the Government's vision of enterprise and expansion of the UK's fledgling e-commerce businesses into a global economy but will unfortunately discriminate against small businesses.
"The PCG aims to support individuals that are willing to form and develop their own businesses, in many cases employing staff and diversifying. IR35 will prevent and hinder this process. The uncertainty that IR35 will create over a company's tax position will not create confidence and will hold back developments in e-commerce."
This is not the first time the Lords have seen the potential damage of IR35. Last year, they voted to remove IR35 from the Welfare Reform Bill, but the Government used its significant majority in the House of Commons to reinstate the IR35 clauses. In keeping with Parliamentary convention, the Lords could not remove it a second time, but were highly critical of the Government's actions.
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Susie Hughes