Ten years on from the introduction of IR35, the controversial measure set up to counter tax avoidance, an Early Day Motion (EDM) tabled in parliament is calling for its abolition.

Liberal Democrat MP Lorely Burt approached the Professional Contractors Group (PCG) to help draft the motion, dated 18 March, which claims that contractors working in the UK “face a perpetual threat of a costly and distressing HM Revenue and Customs (HMRC) investigation under IR35”.

IR35 was proposed in the 1999 Budget of then Chancellor Gordon Brown to target “disguised employment” — workers who receive payments from a client via their own company. These payments are not subject to National Insurance Contributions (NICs) as they can be treated as dividends, and workers can also save tax by splitting ownership of the company with family members in order to place income in lower tax bands.

IR35 aimed to prevent these benefits by taxing individuals working via intermediaries at a rate similar to direct employees. Under the legislation, recruitment agencies who set up and administered intermediary companies for clients could be liable for underpaid tax.

HMRC estimated that by closing down the loophole the total tax and NIC that could be collected would be in the region of £1bn over three years.

The PCG welcomes the move to abolish IR35. John Kell, the body’s director of policy and external relations, told Recruiter: “It would undoubtedly be a good move [to abolish IR35]. We are disappointed that the government seems to be very stiffly against change, but the economic conditions do make it a very timely and appropriate EDM.”

Further, according to Kell, IR35 leaves contractors open to “an aggressive investigation by HMRC, which can last between two to four years and be very distressing”.

As far as the PCG knows, 1,462 of 1,468 investigations into contractors launched by HMRC have resulted in no extra tax being owed.

Kell proposed that the thorny issue of employee status could be resolved using a different approach. “Status should be an employment law issue and not a tax law issue,” he said.

Martin Hesketh, managing director of Brookson, which provides support services for contractors, suggests that repealing IR35 should be cautiously welcomed, so long as well-drafted legislation is brought in to replace it.

He told Recruiter: “Given the potential for abuse that prompted IR35’s introduction 10 years ago still exists, we wonder what might replace it?”

He added: “Our experience of people who’ve tried to do things which are well-intentioned and well-motivated is that none have taken the time and trouble to understand the workers involved. Contractors are not a homogeneous group. You can’t use a ‘one size fits all’ approach.

“The government and opposition parties must ensure they genuinely understand the freelance market and the broader flexible workforce if any proposed changes to legislation are not to make things worse rather than better for self-employed professionals.”

Emma Entwistle, head of recruitment services at Birmingham-based IT specialist Crimson Skills, told Recruiter that abolishing IR35 would lead to more talent considering contract work.

She said: “Abolishing IR35 would definitely encourage people into contracting who hadn’t considered it before.

“Also, the government needs to be encouraging people who want to start up in business.”