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IR35 ‘causes significant damage’ – MPs

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The Government has been urged to immediately review the controversial IR35 tax or face the wrath of the nation’s freelancers when it came to election time.

An influential group of MPs from all political parties have told the government the tax is not benefiting anyone and is causing significant damage to the UK’s army of freelance workers.

The All Party Parliamentary Small Business Group (APPSBG) said the government should instead carry out a detailed review of IR35 to ensure the costs in terms of impact on the freelance market were justified by the benefits in terms of the taxation impact.

Under IR35, which was introduced in April 2002, self-employed contact workers are treated as employees for tax and National Insurance contributions and it is designed to stop those who are members of staff in everything but name paying less to the government.

But APPSBG said there was little real evidence that IR35 has proved cost effective in terms dealing with tax avoidance without also impacting genuine businesses.

APPSBG warned the tax was driving contractors overseas because of the extra burden it was placing on their business.

And the APPSBG’s report said freelancers were questioning the government’s commitment to entrepreneurs as it appeared to them that legislation such as the IR35 actively hindered and discouraged freelancers from developing.

“Several respondents commented that they would have never been able to grow their present businesses if IR35 had been in force when they were freelancing,” it read.

The report also claimed there was potentially a large market for freelancers amongst small businesses provided they were not discouraged by real or perceived legislation.

“The shift in emphasis of legislation towards treating a freelance used on a regular basis is a concern for us as such changes are making it less appealing for small businesses to use freelancers and may limit future opportunities for independent working,” one respondent commented.

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