Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Jenkin of Roding : The amendment has the merit of being already reflected in existing employment law. As long ago as 1978, the Privy Council, in the case of Australian Mutual Provident Society v. Chaplin ruled that,

In the much more recent case of Express and Echo Publications v. Tanton, quoted in The Times as recently as 7th April of this year, the agreement provided that, if the individual contractor was unable or unwilling to perform services personally, he should arrange at his own expense for another suitable person to perform the services. In that case the Court of Appeal held that,

    "A contract of employment involve[s] mutual trust and confidence ... It [is] established that where a person who worked for another was not required to provide their services personally, it could not be right as a matter of law that the relationship between the worker and the person for whom he works was that of employee and employer.

    "[A clause not requiring the worker to perform any services personally] was a provision wholly inconsistent with the contract being a contract of service".

It seems to me that the substitution test is now well regarded and well established by existing law. I hope that the Minister can give an undertaking that that will be one of the matters to be taken into account in the consultation.

Lord McIntosh of Haringey: I can certainly give that undertaking. In saying that, we are reconsidering the multi-dimensional tests which at present exist through case law in the distinction between Schedule D and Schedule E, I mentioned a number of points, tools, risk and so on, which will be taken into account. The power to delegate clearly is another appropriate consideration. I can give an undertaking that that will be taken into account in our response to the consultation. I would rather do it that way than accept the amendment on the face of the Bill now.

Lord Higgins: If the Government take the view which the Minister has expressed, and it is accepted in another place, it seems better to accept the Minister's undertaking on the point. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 140:

Page 76, leave out lines 13 to 23

The noble Lord said: This amendment suggests that lines 13 to 23 on page 76 should be omitted. This is

20 Jul 1999 : Column 929

effectively subsection (5) of Clause 70. It relates to regulations which may be made by reference to,

    "any certification procedure which may be established by the Treasury for the purposes of that provision, or ... such certification may be specified",

in the regulations, and so on.

The amendment seeks to establish what the Government have in mind so far as concerns certification proceedings. There are other areas of tax law, in particular as regards self employed people in the construction industry, and so on, which provide for a degree of certification. But is it envisaged that the Government will decide whether or not to certify the 60,000 companies involved as not being an anti-avoidance device?

In advance of the consultations, it would be helpful to know what the Government have in mind with regard to the provision which the amendment seeks to eliminate. I beg to move.

Lord Jenkin of Roding: My noble friend Lord Higgins has mentioned the construction industry and has referred to what were originally called the 714 certificates. As the Financial Secretary, I introduced those certificates and the system worked well. I made a speech about self-employed hod carriers as an example of the abuse. If the worker could establish that he had a good relationship with the Revenue, that he paid his taxes and his national insurance, he could get a certificate and the sub-contractor could be paid gross. Without such a certificate, the sub-contractor had to deduct tax. That is a well tried system and I hope that the Minister will indicate that the Government have learned from that experience.

10.30 p.m.

Lord McIntosh of Haringey: I do not need to reply, because the noble Lord, Lord Jenkin of Roding, has already replied for me!

Certification will make a service company or agency liable to pay class 1 NICs, and operate PAYE, on substantially all the money they receive in respect of contracts to which the new rules apply. This will mean that they cannot avoid NICs by paying dividends. As a consequence, clients who engage a worker through a certified agency will not be required to deduct tax and NICs from the payment that they make to the certified agency or service company in respect of the worker.

The provision will enable registered service companies to continue to provide their labour to clients as they do at present but without the scope for tax or NICs avoidance that exists currently.

Amendment No. 140 would remove the legislative power to introduce a certification scheme. As the noble Lord, Lord Jenkin, made clear, we are talking about a voluntary certification scheme that is only adopted when it is to the advantage of one or both sides. Removing the certification provision would remove the ability for clients to make gross payments to service companies, even where those service companies are willing to account for the full amount of tax and NICs themselves.

20 Jul 1999 : Column 930

We have consulted extensively on these proposals. There have been specific representations on the proposed certification scheme. We are looking again at whether we can achieve our aims in a way which is effective against avoidance without the need for such a scheme. We do not want to have all the trouble of a certification scheme if it does nobody any good and does not achieve our objectives. I can assure the noble Lord, Lord Higgins, that we take very seriously the need to minimise burdens on businesses.

We will set out in regulations the detail of how the provision will be developed. Full account will be taken of the feedback we have received, including the debate this evening. I have already undertaken that we will provide a full response before the Report Stage of the Bill, and the certification scheme will be included in that response.

If I may add another point of clarification, I wish to make it clear that the certification scheme will simply enable service companies to register that they take a responsibility for PAYE and NICs. It is not a question of identifying good or bad companies. If any contributor fails to discharge its liability, it will be pursued.

Lord Higgins: I had forgotten that my noble friend Lord Jenkin of Roding had some initiative in the area that he mentioned. Since he dealt with direct taxation and I dealt with indirect taxation, we tended to take a break at the appropriate spot and I might have been out of the Chamber at the time. Be that as it may, I still have some doubts about the certification procedure. I have listened to the Minister's remarks and will wish to return to the subject later. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Jenkin of Roding moved Amendment No. 140ZA:

Page 76, line 48, at end insert--
("( ) Regulations made under this section shall not apply where a person provides services that relate to the production, storage or communication of information using computers or micro-electronics.")

The noble Lord said: At this hour of the night and in the light of what the Minister has said, I shall be brief. In particular, I can reassure the noble Lord, Lord Goodhart, that I will not be seeking a specific exemption for the IT industry. The amendment was tabled because the IT industry would, if the clause were to be accepted and the regulations made as envisaged when it was introduced, be particularly hard hit by the changes. The industry is special and unique and is expanding at an exponential rate.

There are considerable peaks and troughs in activity. At present there is a high peak with a number of firms dealing with the millennium bug. The industry is essentially project driven. They may be short, lasting a few weeks, or they may last one or even two years. There must be flexibility for both the clients and the experts to be able to deploy their services as effectively and flexibly as possible.

20 Jul 1999 : Column 931

I hope that in discussions the Minister will take particular account of the needs of the IT industry. The other evening I attended a meeting of the Parliamentary and Scientific Committee addressed by the noble Lord, Lord Sainsbury of Turville. He made a most impressive speech about the huge importance to the economy of our knowledge-based industry. No industry is more knowledge based than the IT industry. One's reaction on reading this clause and the original justification for speeches of Mr Timms in another place was that the Government were talking with two voices. On the one hand, the Minister for Science, sometimes supported by the Prime Minister, appears to be saying that they really want everyone to succeed, for small businesses to flourish and to have the flexibility and enthusiasm of a knowledge-based industry; and then along comes the Treasury and the Inland Revenue and say, "We shall clobber them if they do". That cannot be right. The IT industry is a case in point and that is why I tabled the amendment. I beg to move.

Next Section Back to Table of Contents Lords Hansard Home Page