IR35-bashing kicks off in the Commons

An influential group of MPs from across the political spectrum have urged the government to review the controversial IR35 tax, claiming that it is causing significant damage to the UK's army of freelance workers.

In a report published this week, the All Party Parliamentary Small Business Group (APPSBG) warned that contractors are being driven overseas because of the tax, which the group says is also putting a significant extra cost on businesses.

In short, the APPSBG's message is that IR35 - which was introduced in April 2000 as a way of closing a tax-avoidance loophole - appears to be far from acceptable in its present form.

A statement from the APPSBG said: "The government should carry out a detailed review of IR35 to ensure that the costs in terms of the impact on the freelancer market are justified by the benefits in terms of the taxation impact. There is little real evidence that IR35 has proved cost effective in terms of dealing with tax avoidance without also impacting genuine businesses."

The APPSBG also warned that IR35 is demotivating highly-skilled freelancers, and could drive many of them out of the UK altogether.

Some contractors attempt to get around IR35 by using "IR35-friendly contracts". They were warned earlier this year that such contracts are illegal, and could land them in jail.

Opponents of IR35 have claimed that it is unfair that contractors are taxed as if they are full-time employees, but don't also receive the benefits enjoyed by permanent staff - such as holiday and sick pay. The APPSBG would like the government to address this issue.

The group said: "IR35 is not providing any increased employment rights for workers. Clients have no incentive to either engage with freelancers on a truly self employed basis or to replace freelancers with permanent employees. Thought should be given to whether more can be done to aligning employment status with tax status in IR35 situations where workers are clearly disguised employees."

Graeme Wearden writes for ZDNet UK