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Dawn Primarolo: The first day after 17 May has been the day on which employers and pension providers are asked to implement any codes and tax changes resulting from changes in the Budget. As last year, this clause changes the date, for this year only, from the first pay day after 17 May to the first pay day after 14 June. That allows time for the Inland Revenue to send out the necessary employer packs, and for employers to implement them, given that the Budget was in April this year.
As PAYE works on a cumulative basis, no one will lose out as a result of the delay. The system automatically gives people the benefit of any tax reduction that they are due on the first pay day after 14 June. The clause makes no difference to the way in which the Inland Revenue and employers administer PAYE. It is essentially a technical amendment, to bring matters into line. As the hon. Member for Arundel and South Downs well knows, the same clause was brought forward last year in a straightforward and reasonable way and he saw no problems with it.
Clause 135 extends the scope of the much reviled and criticised IR35 legislation, which continues to cause distress. It applies to people who provide personal services through an intermediary to those who are engaged in a domestic capacity. The proposals are to take effect retrospectively, from 10 April this year.
The clause means that affected people will have to submit two self-assessment tax returns. The amendment is very simple and offers an easy solution. I am surprised that the Government did not adopt a similar approach in the first place. I hope that, for once, they will accept the amendment with the result that we get a better Bill. The amendment would simply delay the effective date for the income tax change, so that changes to national insurance and income tax happen on the same date.
The Government's anti-avoidance legislation is drafted in such a way that the people concerned, to reflect their tax affairs properly, must make two self-assessment tax returns this year. Those individuals were encouraged to incorporate by the Government, but they will be left with the increased burden of corporate regulation, no tax incentives, and considerable complexity when it comes to self-assessing their tax affairs.
It would be sensible to remind the House that the IR35 rules were originally written specifically to exclude domestic staff, presumably because the amounts at stake in tax and national insurance charges were not high. Has that changed dramatically over the past year? Is that why the Government are so monumentally concerned about the matter that they have to capture the domestic staff involved? Given that the clause is expected to raise only £15 million a year, that would be very surprising.
Furthermore, although a hugefor themadditional regulatory burden is being placed on the people concerned, no regulatory impact assessment is available. Has one been undertaken? The Government claimed always to be able to put in place such an assessment. When the matter has been raised in various Committee discussions, the Government have
To make matters worse, the Government last year encouraged sole traders to incorporate, with the introduction of lower corporation taxes for smaller companies. A number of people acted on that, and incorporatedwell done thembut now, only a year later, this Bill proposes to tax certain of those individuals as though they had not incorporated at all.
The provision is not targeted at wealthy tax planners. It will affect workers on relatively low incomes, who pay tax at the basic rate. They relied on last year's legislation in good faith. The Chancellor's proposed IR35 changes will be a major headache for tens of thousands of people who provide domestic services, such as gardeners, cleaners and cooks. They will be dragged into the Government's bureaucratic tax trap. The people affected will lose money, and be forced to submit extra tax returns.
The Chancellor is taking almost £50 million over the next three years out of the pockets of nannies, gardeners and cooks, and transferring it to the Government's coffers. The Federation of Small Businesses has noted that the provision will affect some of the lowest earners in Britain.
Only last year, many of the people involved were encouraged by the Government to incorporate. Twelve months on, they are to be hit by this regulation. None of the expected tax incentives can continue to apply and, for the people involved, assessing their tax position will be a considerably complex task. The problem has arisen solely because of the Government's incompetence, and their inability to draft effective legislation. Many people who thought that they were doing the right thing by following the Government's advice last year will now be seriously inconvenienced and financially penalised for their diligence.
No doubt, the Government will try to justify this clause only 12 months after they incorporated the very encouragement that has led to what they regard as the mischief of anti-avoidance. The Government say that they must stop anti-avoidance, and the Opposition have said repeatedlyas we must, to prevent the Government from falling into the temptation of mounting a false argumentthat we support that. I have demonstrated the scale of the matter, but the theme of this Finance Bill, as was shown yesterday, is that the Government are determined to wrestle as many of the measures as possible through the House under the cloak of anti-avoidance. That is a blatant attempt to stifle scrutiny and criticism.
The Government and the Treasury have adopted an arrogant approach. They are not aiming to target anti-avoidance so much as making a futile attempt to be anti-accountability. Britain's honest and hard-working citizens will not be fooled.
I have read the official record of last year's Finance Bill Committee debates. The Government were fully aware that the interaction of lower corporation tax rates and dividend planning would provide tax advantages for an incorporated business. Even so, they implemented the measures without amendment.
It is proper and right to remind the Committee and the Paymaster GeneralI also hope that the Chancellor may deign occasionally to listen to arguments that do not accord entirely with his ownabout a Federation of Small Businesses report published on 3 February this year. The report said that, at the time that the Government proposed the measures last year, a self-employed person with profits of £15,000 could pay up to 32 times more in tax than an incorporated counterpart.
The report, entitled "The Self Employed versus Incorporated Businesses", is well worth a read. It quotes figures from the Institute of Fiscal Studies, so it is not merely self-serving special pleading on the part of small businesses, although there is no more worthy cause in the business arena. The report states that, on profits of £15,000, the self-employed person would pay a combined income tax and national insurance bill of £2,884, which is 32 times more than the £91 paid in corporation tax by a limited company. On profits of £30,000, a self-employed person pays a combined income tax and NIC bill of £7,234, compared to £3,654 in corporation tax for a limited company. Is that not an obvious disparity between self-employment and incorporation?
As a background to the amendment and to the Government's purpose in extending the measure to low-income earners, such disparity in tax treatment shows that, even after all the strong encouragement and the legislative power devoted to persuading those on low incomes to incorporate, the minute that, in good faith, they do so, they are slapped with a further regulatory burden. Their affairs become complex and they may suffer financial penalties.
Through the Government's mistakes, the original legislation was not drafted properly, so they have a responsibility to those who relied on it. The least that they can do is to implement the measure in such a way that individuals can unwind their affairs or carry out self-assessment with the least complication.
If the Government are characteristically blind to our arguments, I and my party, on behalf of the relatively low-earning nannies, gardeners, cooks and all the others who are affected by the measure will wish to press the amendment to a vote.