I believe it is important that we are able to distinguish between genuine and ‘bogus’ self-employment. But the proposed government changes have so far caused much uncertainty, bureaucratic burdens and financial hardship for legitimate independent contractors working for the private sector.
Some contractors are facing substantial cuts in their take-home pay. Many public sector bodies appear not to be acting on a case-by-case basis to implement the new law, but are instead issuing blanket rulings or even banning contracts to personal service companies all together.
Although there are some cases where personal service companies are being used to avoid taxes, the IR35 reforms are the equivalent of using a hammer to crack a nut. HMRC is clamping down aggressively on this form of avoidance but harming too many genuinely self-employed people in the process.
Speaking in a debate on tax avoidance following the publication of the Paradise Papers, former Liberal Democrat leader Sir Vince Cable said that the Government should not be prioritising scrutiny of the self-employed while ignoring measures to clamp down on the tax avoidance practices of corporations and the lax practices of some British Overseas Territories.
Liberal Democrats would end retrospective tax changes like the loan charge brought in by the Conservatives, so that individuals and firms are treated fairly and review recent proposals to change the IR35 rules.
If the Government is so serious about clamping down on tax avoidance, then it has selected the wrong place to start. Liberal Democrats want to reform IR35 in a way that does not penalisze the self-employed or reduce the flexibility of our labour market. We want a system that is decent and flexible.