Treasury minister criticised over Lords’ report on IR35
18 June 2014
A Treasury minister has come under fire in the House of Lords for refusing to give evidence to a select committee report on personal service companies and the IR35 legislation against tax avoidance.
Wed, 18 Jun 2014A Treasury minister has come under fire in the House of Lords for refusing to give evidence to a select committee report on personal service companies and the IR35 legislation against tax avoidance.
Baroness Noakes, Conservative chair of the select committee on personal service companies, on Tuesday told peers debating the report and the government’s response that the whole committee was disappointed at the refusal of the Exchequer Secretary to the Treasury, David Gauke, to answer their questions.
“To rub salt into the wound, he also refused to allow Treasury officials to do so,” she said. While HM Revenue & Customs was responsible for administering the tax system, it was the Treasury that set policy.
Lord Myners, a Treasury minister under Labour, said he had regarded it as “absolutely beyond question that if I were invited to account to Parliament, I should do so”.
Myners said: “There are prima facie reasons to believe that there is substantial tax leakage at the upper end through personal service companies, while at the lower end of payment there may well be social harm as a result of people forgoing, unknowingly or under duress, some of their employment rights. It was quite frankly unacceptable for the Treasury minister not to accept either of the invitations from the committee to give evidence.”
There had been “a very flimsy response from the Treasury” to the select committee report on the use of personal service companies in both the public and private sectors, and on the operation of the IR35 rules intended to tax "disguised employment" by workers who are paid via an intermediary, he said.
He went on: “It is quite clear to us that IR35 causes many problems. I want to say that it is not working, but it is not entirely clear what it is designed to do.
“The HMRC officials who gave evidence to us seemed far from clear about how it worked in practice, or were unable to substantiate the figures that they gave us.”
Lord Higgins, a Conservative, said: “The Revenue is concerned that if it [IR35] were abolished, there would be mass migration from PAYE to personal service companies, and estimates a loss of revenue of £550m.
“We have serious doubts about how valid that estimate is. While the Revenue has produced a slightly more sophisticated version in response to our report, it does not add anything significant to the earlier assurances that we were given on this subject.”
Baroness Morgan of Huyton (Labour) said there had been an explosion in the use of personal service companies, and that there was “a whole new industry, a sort of job creation in action, around servicing IR35 and personal service companies”.
In some industries, particularly oil and gas, where contracts were time-limited and specialist, she said the use of personal service companies was understandable. But she went on: “Collectively, we were surprised and shocked by the evidence we received that showed the widespread use of personal service companies across a range of poorly paid jobs, including healthcare workers and cleaners, but many others too.”
Defending the coalition government, Lord Newby, the LibDem chief whip in the Lords, said he understood the irritation of peers at the non-attendance of David Gauke and would draw this to the attention of Treasury ministers.
Personal service companies were a key feature of the UK’s flexible labour market and had contributed to the economic recovery, he said. “Regrettably … there are those who see such arrangements as an opportunity to avoid paying their fair share and there is abuse of the system, not least among those on low pay who are often unaware of the situation in which they find themselves.”
Newby said the HMRC calculations that more than £500m pounds of Exchequer receipts would be at risk were IR35 to be abolished were “robust”. He added: “One of our biggest challenges is effectively to tackle avoidance while encouraging genuine enterprise.”
There had been, he said, confusion about the number of HMRC inquiries into allegations of IR35 abuse. From 1,000 in 2002 the number had shrunk to 12 during Labour’s last year in office but now stood at 256.
The government took seriously complaints that low-paid workers were being forced into the use of personal service or umbrella companies. This year’s Budget had “tackled one model that was being used to engage workers as self-employed when in reality they should have been employees”, he said.
Baroness Noakes, Conservative chair of the select committee on personal service companies, on Tuesday told peers debating the report and the government’s response that the whole committee was disappointed at the refusal of the Exchequer Secretary to the Treasury, David Gauke, to answer their questions.
“To rub salt into the wound, he also refused to allow Treasury officials to do so,” she said. While HM Revenue & Customs was responsible for administering the tax system, it was the Treasury that set policy.
Lord Myners, a Treasury minister under Labour, said he had regarded it as “absolutely beyond question that if I were invited to account to Parliament, I should do so”.
Myners said: “There are prima facie reasons to believe that there is substantial tax leakage at the upper end through personal service companies, while at the lower end of payment there may well be social harm as a result of people forgoing, unknowingly or under duress, some of their employment rights. It was quite frankly unacceptable for the Treasury minister not to accept either of the invitations from the committee to give evidence.”
There had been “a very flimsy response from the Treasury” to the select committee report on the use of personal service companies in both the public and private sectors, and on the operation of the IR35 rules intended to tax "disguised employment" by workers who are paid via an intermediary, he said.
He went on: “It is quite clear to us that IR35 causes many problems. I want to say that it is not working, but it is not entirely clear what it is designed to do.
“The HMRC officials who gave evidence to us seemed far from clear about how it worked in practice, or were unable to substantiate the figures that they gave us.”
Lord Higgins, a Conservative, said: “The Revenue is concerned that if it [IR35] were abolished, there would be mass migration from PAYE to personal service companies, and estimates a loss of revenue of £550m.
“We have serious doubts about how valid that estimate is. While the Revenue has produced a slightly more sophisticated version in response to our report, it does not add anything significant to the earlier assurances that we were given on this subject.”
Baroness Morgan of Huyton (Labour) said there had been an explosion in the use of personal service companies, and that there was “a whole new industry, a sort of job creation in action, around servicing IR35 and personal service companies”.
In some industries, particularly oil and gas, where contracts were time-limited and specialist, she said the use of personal service companies was understandable. But she went on: “Collectively, we were surprised and shocked by the evidence we received that showed the widespread use of personal service companies across a range of poorly paid jobs, including healthcare workers and cleaners, but many others too.”
Defending the coalition government, Lord Newby, the LibDem chief whip in the Lords, said he understood the irritation of peers at the non-attendance of David Gauke and would draw this to the attention of Treasury ministers.
Personal service companies were a key feature of the UK’s flexible labour market and had contributed to the economic recovery, he said. “Regrettably … there are those who see such arrangements as an opportunity to avoid paying their fair share and there is abuse of the system, not least among those on low pay who are often unaware of the situation in which they find themselves.”
Newby said the HMRC calculations that more than £500m pounds of Exchequer receipts would be at risk were IR35 to be abolished were “robust”. He added: “One of our biggest challenges is effectively to tackle avoidance while encouraging genuine enterprise.”
There had been, he said, confusion about the number of HMRC inquiries into allegations of IR35 abuse. From 1,000 in 2002 the number had shrunk to 12 during Labour’s last year in office but now stood at 256.
The government took seriously complaints that low-paid workers were being forced into the use of personal service or umbrella companies. This year’s Budget had “tackled one model that was being used to engage workers as self-employed when in reality they should have been employees”, he said.
