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Mr. Timms: I will not give way again, because I need to make progress if I am to answer some of the questions that Conservative Members have raised.
When it has been established that the new legislation applies to a worker, that person will be obliged to pay PAYE tax and class 1 national insurance on a minimum salary from the service company. The minimum salary is calculated by taking the money received by the service company from the client for the relevant job and deducting amounts for expenses paid by the company.
Those deductions are any expenses that an employee in the same circumstances would be entitled to claim as deductions for tax purposes--
Mr. Charles Wardle (Bexhill and Battle):
Will the Minister give way?
Mr. Timms:
I will not for the time being.
Other deductions include any employer's contributions paid by the intermediary to an approved pension scheme on behalf of the worker, any secondary class 1 national insurance contributions paid by the intermediary in respect of the worker, plus a flat-rate allowance of 5 per cent. of the intermediary's receipts from relevant contracts. That deduction is to recognise the general and miscellaneous expenses associated with running a service company.
Mr. Timms:
I give way, but then I will need to make some progress.
Sir Nicholas Lyell:
Constituents have made the point to me today that the 5 per cent. allowance has to cover training and that it is wholly inadequate to do that in, for example, the information technology sector, as I am sure the Minister would recognise if he studied the matter carefully. What does he have to say about that?
Mr. Timms:
Why did the previous Government leave so many gaping tax loopholes? It is high time that the loopholes were plugged. That is what we are doing with the change. It is high time that the change was made.
Mr. Timms:
I will not give way. I need to make some more progress.
Mr. Deputy Speaker:
Order. The Minister has stated that he will not give way at the moment.
Sir Nicholas Lyell:
Will the Minister give way?
Mr. Timms:
I will not at the moment.
The rules that apply to everyone else, including people in the IT and engineering industries who do not work through service companies, are appropriate for IT consultants as well. Many IT consultants will be able to demonstrate that they would qualify to be treated as self-employed under the ordinary definition and therefore would not be affected by the legislation, but someone who works for a long period for a single client, sitting at a desk in the client's office, as part of a team consisting of a mixture of contractors and permanent employees, all doing identical jobs, should pay the same tax and national insurance as those permanent employees. It is wrong that the act of setting up a one-man company can enable--[Interruption.]
Mr. Deputy Speaker:
Order. The hon. Member for Islington, North (Mr. Corbyn) is standing and shouting. The Minister has stated that he is not giving way at the moment.
Mr. Timms:
It is wrong that that act should enable an individual to save over 20 per cent. in national insurance. That is the unfair competition that needs to be addressed and that we are addressing with the changes.
It has been argued that the proposals would favour big foreign firms over small United Kingdom businesses, but that is not true. Our proposals will prevent a form of avoidance that is only available to workers who control their own service companies and can use them to decide the form in which they take their income to minimise tax and national insurance.
Mr. Bercow:
Will the Minister give way?
It is not an issue for big companies that cannot be used by employees to manipulate the form of their income. Where there is evidence of tax avoidance by large companies, we are just as ready, unlike the previous Government, to act against that. The real competition that we should be concerned about is that between people who are employees and others doing substantially the same job, but using a service company to pay much less in tax and national insurance. That is unfair and we shall stop it.
The arguments in the other place against our proposals do not add up. There has been a well-funded campaign by a special interest group that is seeking to preserve its right to avoid tax--make hay while the sun shines. We are not going to back down; we owe it to the millions of taxpayers and contributors who are paying their fair
share and who have to bear the burden when other people do not do so. I ask the House to support them, the motion and the Government amendments.
Mr. Trend:
The Government try to be the little friend of all the world, but, tonight, they have voted against the disabled, war widows and the bereaved and, now, they are showing that they are no friends of entrepreneurs, or small business men.
The Government claim that their new stealth tax was designed to counter tax avoidance in the personal services sector. Let there be no misunderstanding about it: we clearly support efforts to tackle genuine tax avoidance. The Government say that there was general concern about the hiring of individuals through their own service companies in the interests of realising fiscal advantages. The Government's objective sounds whiter than white. But who are those wicked tax-dodging entrepreneurs?
Like other hon. Members, I have received considerable correspondence on the subject from constituents--all of them small business men of the kind the Prime Minister says he supports. One of them--the director of a small information technology consultancy business working within the mobile telecommunications industry--told me that forming his own business was a way in which he could progress and yet stay technologically up to date. He said that, if IR 35 is implemented, with the inherent possible risks of being out of work between contracts, there will be no point in continuing his business. Other constituents have written in the same vein.
Mr. Bercow:
The message that my hon. Friend conveys to the House is one that will have been heard already today by many right hon. and hon. Members on both sides of the House--not least from Mr. Robert Evans, a distinguished entrepreneur from my own Buckinghamshire constituency, whom I had the privilege of seeing earlier today. Does my hon. Friend agree that, if the Minister is to justify his position that the provision will favour big companies over small, he should do the decent thing and issue today a list of the small companies that have supported his risible proposals.
Mr. Trend:
My hon. Friend makes his own point extremely well.
If the Minister had met the hundreds of people involved in the issue who had the time and ability to come to the House today, he would have seen literally scores of people--honest, hard-working entrepreneurs--who were incredibly angry with the Government, who they feel have fingered them for a stealth tax. Those people are not artful tax dodgers, but decent, honest citizens who are using their initiative, expertise and hard work for career development and opportunities for increased remuneration--not at other people's expense, but from their own efforts. They may be ambitious, but what is wrong with that?
My constituents tell me that, without exception, if IR 35 is implemented, they may be forced to close the small specialist companies they have formed. The Government's proposed new stealth tax on the self-employed is calculated deliberately and viciously to penalise the very entrepreneurial society that the Government, with supreme hypocrisy, say they support. I should remind the House how the proposal came to be considered.
The proposal was first considered by the House on Report, on a night when the Government were trying to avoid another grief of their own making. The proposal then went off to another place. There, the original proposal was savaged, and then radically tinkered with. The new proposal, however, was just as half-baked as the original.
The Government said that they would consult on the proposal over the summer. However, there was no formal consultation document, no terms of reference, no invitation to explore alternative solutions, and no indication of the time scale of the consultation--all of which we should have expected to see in a matter of this importance.
Mr. Michael Fabricant (Lichfield):
Does my hon. Friend realise that the matter has an even longer history? Does he know that the Inland Revenue made the same proposal in 1983, but that it was rejected by the then Chancellor of the Exchequer as bad for business? Does he realise that it was proposed again, in 1987, but that it was rejected again, because it was realised that it would be bad for business? Only the current Government--who do not understand what business is all about--have accepted the recommendation from tax officials.
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