MPs' bid to make IR35 training costs tax deductible fails

A recent attempt by MPs to add a new section to the Finance Bill that would make IR35-caught contractors' training costs fully tax deductible has failed. John Bercow, Opposition Chief Secretary to the Treasury; Chris Grayling, Backbench Conservative MP for Epsom and Ewell; and John Burnett, Liberal Democrat spokesperson for Home and Legal Affairs recently tried to introduce the clause to the new Finance Bill.

Mr Bercow told Ms Primarolo: "This clause (clause 8) is so manifestly reasonable that only an extraordinarily unreasonable Government could resist it. I believe that the costs of vocational training should be deductible for an IR35 individual who is both employee and employer, in the same way that those costs would be deductible for any other employer.

"This clause is so manifestly reasonable that only an extraordinarily unreasonable Government could resist it" - John Bercow, speaking prior to the Government's resistance of his clause

"Since the Paymaster General said in Committee that IR35 individuals can get all the tax benefits of being employed, we think that it is reasonable for them to get relief for eligible and relevant training costs."

Mr Burnett added: "IR35 is unsatisfactory, partial and prejudicial. Nevertheless, we agree that in the meantime the costs of vocational training should be deductible and we support the new clause."

Ms Primarolo replied: "I shall not accept new clause 8. The new clause would not bring IR35 employees in line with others in the tax system. Indeed, it would do the reverse. It would give them an advantageous position that no one else in the tax system possesses. I would therefore ask him to withdraw it."

Howard Flight, the Opposition Spokesman for the Treasury, replied: "The basic principle of the new clause is that people should not be disadvantaged with regard to skill training just because they fall under IR35. On the basis that the issue will be investigated further I ask leave to withdraw the motion."

The argument over contractors' training expenses stems, in part, from the five per cent re-investment 'ceiling' imposed by IR35, which disallows expenses from being tax deductible over five per cent of a contractor's annual limited company turnover.

Mr Bercow, Mr Burnett and Mr Grayling are not the first MPs to have taken the issue up with the Paymaster General in the House of Commons.

In November 2001, Dr Vincent Cable, Liberal Democrat MP for Twickenham, asked what plans the Chancellor had to review the rule.

Ms Primarolo responded: 'Service company workers affected by the service company legislation are entitled to all the same expenses as conventional employees. In addition to these expenses, service company workers are also entitled to a five per cent, flat-rate reduction in recognition of the fact that there are costs associated with running a service company. We have no plans to review the level of this deduction.'

The issue of fairness over the five per cent rule was also raised when Individual Learning Accounts were abolished last year.

Ms Primarolo had previously assured contractors they would be able to train themselves using the ILA scheme. Her office told UKTECH, the training position for contractors would be 'unchanged' following the scheme's abolition.