§ 4. Dr. Vincent Cable (Twickenham)If he will make a statement on his recent discussions with IT contractors' representatives on IR35. [112215]
§ The Paymaster General (Dawn Primarolo)I met representatives of the professional contractors group in December. I explained to them why the Government believe that it is necessary to prevent avoidance of tax and national insurance contributions by workers using personal service companies.
§ Dr. CableWhat advice has the Minister received from the Prime Minister's adviser on e-commerce, who has publicly expressed his disquiet about the impact of the tax on our knowledge-based industry? How does the Inland Revenue propose to treat the tens of thousands of 1180 IT contractors, who are honest and do not avoid taxation, but have great difficulty in distinguishing between employed and self-employed status, as they are now required to do, because of the complexities of IT contracts?
§ Dawn PrimaroloFirst, it is not true that the e-commerce envoy has been making representations to the Treasury about relaxing the rules. He made it clear that he supports the Government's policy of stopping unfair tax and national insurance avoidance.
Secondly, IR35 deals with avoidance in cases in which one employee in a company avoids tax and national insurance. That means that such employees do not pay tax and national insurance, which are paid by other people who are self-employed or on pay-as-you-earn pay. The hon. Gentleman should explain why he is prepared to support a group of workers whose companies their own advisers describe as tax havens. Why should they be allowed to continue to cheat honest taxpayers?
§ Ms Julia Drown (South Swindon)A small IT business in my constituency has told me that it fears that it will not be able to survive and continue to prosper under the new IR35 rules. Will my hon. Friend liaise with colleagues in the Government to ensure that the Inland Revenue and the Small Business Service work with such companies to ensure that they can continue to be successful?
§ Dawn PrimaroloFrightening and undermining the legitimacy of the many hundreds of thousands of legitimate companies that operate as service companies is part of the scare tactics of those who seek to avoid tax by using service companies. The Inland Revenue continues to advise those companies that will be caught by the rules through a helpline and a comprehensive website. We are ensuring that honest taxpayers will be strengthened by the rules, not undermined, and that people compete on skills, not by using the rules only for tax advantage, as the few are doing.
§ Mr. Richard Ottaway (Croydon, South)Is it not clear from yesterday's written answers that the Minister has absolutely no idea of the damage that IR35 is causing to the knowledge-driven economy? The Government's manifesto at the last election said that they would
Give Britain's entrepreneurs and small businesses the backing they deserve.Instead, we have IR35—a stealth tax introduced by the back door. The result is uncertainty over self-employed status, a lot of competitiveness and a brain drain to more stable tax systems. Did not the biggest gaffe come from the Minister for Small Business and E-Commerce, who said that she would use a recent visit to the United States to try to woo back British expats? Looking at the chaos caused by IR35, who in his right mind would come back to this mess? It is pain without gain.
§ Dawn PrimaroloPerhaps the hon. Gentleman needs to be reminded of everything that the Government have done for small businesses: the small business company rate cut; the new 10p corporation tax starting rate; first-year capital allowances; enterprise management incentives; and help through the Small Business Service. He still has not told the House why his party supports a few workers who use their companies to avoid paying 1181 tax when millions of others pay their tax. I direct him to Computer Contractor magazine of October 1999. Under the headline "Make hay while the sun shines", it said:
Beg, borrow or steal to avoid paying higher tax rates this year. Next year you will not be able to avoid it. You should recognise that your company … is a tax haven.He has to realise that, as we have rules in the system for self-employed and PAYE employees, it is not unreasonable to expect those few who are avoiding the rules to comply with them.