Taxation and IR35
Technology is making possible new ways of working that challenge traditional models of employment. There is a tendency towards more flexible working in the market generally that has particularly been adopted by the IT sector. Many companies would rather use a variety of outsourced firms or contract workers to provide their IT services because they need access to a wide range of specialties.
There was understandable anger amongst IT consultants when the rules for self-employment were changed in a regulation known as IR35. IR35 was intended to tackle the problem of personal service companies and similar intermediaries providing a means to avoid paying a fair share of tax and National Insurance contributions. While the plugging of loopholes in tax and National Insurance collection is a sensible task for Government to undertake, the changes introduced by the Government do not take into account the needs of IT contractors. As methods of working have changed, so the taxation system should evolve to support modern working practices rather than discouraging small businesses in the UK.
The principal argument from the IT industry which does deserve a serious response is that while consultants may be placed with a single employer for a number of months, they nevertheless have additional expenses for equipment and training that are different from those of a PAYE employee. There are expectations on many contractors, that they should develop their own skills and undertake a level of self-management, that would not be placed on payroll employees.
The Liberal Democrats propose to review this area of taxation to develop new rules that will allow specialist contractors to properly charge reasonable and legitimate expenses against their pre-tax income.
These rules should balance the economic requirement for contractors to be able to operate on a self-employed basis with limited liability with the public need to prevent tax avoidance.