PCG: No call for immediate repeal of IR35

Freelancer trade body, the PCG, did not call for the immediate repeal of IR35 in its submission to the Office of Tax Simplification's (OTS) recent review. Instead it proposed a way forward through a series of 'gateway' tests.

In the covering letter in its submission to the OTS dated December 2010, PCG's Chairman Chris Bryce wrote that the group remained committed to the repeal of IR35, but then qualified it with: "However this report does not call for the immediate repeal of IR35, rather it proposes an effective way forward that PCG believes can be delivered in the short term."

He continued: "As PCG's Chairman, I am confident that the proposals set out in this report reach a fair and justifiable balance between the needs of Government to ensure that the taxation system is not unfairly prejudiced and the rights of taxpayers for clarity and certainty in their tax affairs."

The report then focussed on an analysis of the freelance environment and an explanation of the proposed gateway tests. (See: PCG's submission to the OTS - Dec 2010)

Choices

After gathering input from a range of interested parties, the OTS made two main recommendations to the Government in its report in March 2010.

It recommended either:

• Suspend IR35 with the intention of permanent abolition, using the period of suspension to investigate behaviours and costs; or
  
• Keep IR35 legislation unchanged, but improve the way it is administered by HMRC.

The OTS also offered a third alternative to consider, namely the introduction of a new 'business test' in line with the PCG's proposal, but at the time the OTS said that this is not an immediate simplification as it would require more definitions and tests. The OTS indicated that it was something which could be considered during any period of suspension, which suggested it was not being identified as a stand alone option in the report.

There has been no suggestion that either one of the main two options had been dismissed prior to the publication of the OTS report, and participants have confirmed that they were unaware of Ministers' decisions until after the Budget.

Abolition

At the time of the publication of the report in March 2010, the PCG called on the Chancellor to opt for abolition, although its submission two months earlier had not made this case. Chris Bryce said then: "Should the Chancellor accept the recommendation to abolish IR35 this would be a major advance towards honesty, transparency and fairness for the freelance community. We now wait for the Chancellor's decision on the merger of NICs and Income Tax which will provide the basis for any reform....

"We have been telling the Government and all interested parties that IR35 was not fit for purpose. We now call on the Chancellor to opt to suspend IR35 with the view of permanent abolition.

"This would remove a shadow that has hung over the UK freelance community for over a decade and be a massive vote of confidence in this skilled and flexible community."

Mr Bryce also confirmed that the group saw 'business tests' as another potential way forward. But he added: "However keeping IR35 unchanged but with improved HMRC administration is not a valid solution to IR35 and PCG could not accept this."

The Chancellor confirmed in the Budget report on March 23 that the Government would proceed with the option to keep IR35 and improve the way it is administered by HMRC.

Questions

Since the Professional Contractors Group was formed in 1999 in a direct response to the threat of IR35, it has actively spoken out and campaigned against the freelancer tax. It has since rebranded itself 'PCG, the Voice of Freelancing' and taken on a wider remit, although the removal of IR35 has remained a constant call throughout. The arrival of the new Government and the review into IR35 by the OTS provided the only real opportunity in more than 10 years to remove IR35 from the Statute Books.

When PCG was appointed to the OTS review committee in July last year, they promised they 'will be working to ensure that this iniquitous tax will go'. Many thought that the political door was already partially open on this issue.

Yesterday, UKTECH approached Mr Bryce, who had been on the OTS review committee, to ask if he would comment on the following points given that PCG was publicly calling for abolition/suspension before, during and after the OTS review:

• Why PCG did not ask for abolition/suspension of IR35 in its submission to OTS (Dec 2010)?
  
• Why and when the PCG changed to the 'business tests/gateway' proposal?
  
• What is PCG's current position and future aims?

In response, PCG's press office sent a copy of their latest press notice,

PCG at the heart of Government plans to review tax on freelancers, which, they said, explained their position.

The press notice refers to PCG's invitation to join the new IR35 Forum, a body set up to monitor and evaluate HMRC's approach in administering IR35. In it, John Brazier, PCG Managing Director, said: "It is vital that freelancers are properly represented at this juncture. We have been assured that far from being a 'talking shop' the new Forum will be a positive force for change. PCG has already put forward initial thoughts on how the Forum should work to revamp IR35. We will continue to develop these ideas in conjunction with our membership.

"The acknowledgement from all sides at the OTS conference that tax collection needs to be better administered underlines that there is a genuine climate for change. As the UK's largest association representing freelancers and contractors it is our responsibility to do everything in our power to deliver that change and to ensure the best business environment for freelancers. This remains our core objective."

The invitation to PCG to clarify any of these points still stands.