Industry to lobby politicians as final reckoning nears for IR35

An alliance of IT contractors, business leaders and opposition politicians will today lobby against a tougher tax regime for one-person service companies as the controversial Welfare Reforms and Pensions Bill returns to the House of Commons.

Although the House of Lords voted against the IR35 proposals originally contained with the Bill, the government is expected to re-introduce them in a slightly different form.

The government claims it is trying to bring contractors' tax liability in line with the rest of the workforce. However, those opposing the proposed legislation claim it will mean a braindrain as skilled IT workers quit the UK to avoid the extra tax burden.

Moreover, the Professional Contractors Group (PCG), which has led the anti-IR35 movement, claims the proposals could even lead to a loss of £705m in tax revenues as contractors leave the UK. "Today represents the final opportunity for persuading MPs as to the rightness of our cause and just how much damage is likely to be done to the knowledge-based sector if these proposals go through," said David Ramsden, director of the PCG. The government, however, predicts its moves would save £300m.

The government is likely to limit the time the Welfare Reforms and Pensions Bill receives in the Commons, and given other contentious aspects on the agenda, such as changes to disability benefits, IR35 could get scant airtime.

Francis Maude MP, the Shadow Chancellor, accused Gordon Brown of hypocrisy. "Mr Brown's proposals show alarming naiveté and a lack of understanding of the knowledge-based economy. This tax will clobber bright mobile young people, who can easily fly off to find work elsewhere," he said.

He also said Brown is on the one hand pandering to the IT industry, while on the other, is trying to introduce "IT stealth taxes".

The 3 sixty group - the accountancy firm for IT contractors which is joining with the PCG and others in opposing IR35 - last week (http://www.silicon.com/a33615 ) pointed out that the government is using the same guillotine-motion tactics the Conservatives used to see in the Poll Tax.

Both the PCG and 3 sixty group director, Iain Sutherland, have pointed out that the government's own latest regulatory impact assessment document, put together by the Treasury and Inland Revenue, also warns that the UK should "expect some loss of international competitiveness" because of the effects of IR35.