Finance Bill

My hon. Friend is right to pull me up on that point. It is unacceptable that, given the significant increase in red tape that we have seen under the Government, including a huge increase in the complexity of the tax system, the Government want to hammer small business people who want to outsource the hassle that comes with that extra burden of red tape. It is unfair and it is not justified by the proposals. To return to the point about tax collection, instead of having to monitor and deal with 150 specialist providers, HMRC will have to deal with thousands more individual personal service companies as the provisions that prevent outsourcing bite. Those individual contractors may, I am afraid, prove far less efficient at paying HMRC the tax that they owe than the specialist advisers were. We need further consideration of the impact of the loss of VAT income where the rules result in freelancers being taxed as employed people rather than self-employed people. It would be wise, too, to assess the impact of schedule 3 on departmental budgets. I am informed that the national health service and HMRC make substantial use of workers operating through personal service companies and managed service companies. Concerns have been expressed by organisations such as the Recruitment and Employment Confederation that the proposals could have a big impact on projects such as the NHS IT programme and the Olympics. We do not believe that the Government have properly thought through those issues, and that is why we have tabled amendment No. 1. A delay in implementing schedule 3 could also give a chance for other options to be considered. A possible alternative would be some sort of licensing system for managed service company providers. HMRC is clearly concerned about that part of the service sector. Instead of drafting wide tax provisions, why not just tell the companies that they cannot operate unless they are licensed and that if they are caught using MSCs to disguise employment-based relationships they will be fined or shut down? In that way, we can get to the problem on which the Government are focusing—the small number of companies that operate abusive MSC schemes—but will not burden the entire freelancing and contractor communities with unintended extra costs, extra hassle and legal uncertainty, not to mention the thousands of lawyers and accountants who provide advice to those freelancers and small companies. The last point in favour of amendment No. 1 is the most obvious. More time should be given for consultation with those affected by the provisions. There was a short window between the end of the consultation on 2 March and the publication of the Finance Bill and the start of the new rules on 6 April. The statutory element of the third-party debt provisions went into the Bill even before the consultation period was finished. Surely that suggests that the Treasury proposes to take only limited notice of the representations that have been made. IR35 had many problems, as I have outlined, but at least the Government took a lengthy period to finalise and implement that measure. During that time, the Revenue carried out in-depth discussions with many people who were affected by the legislation. People had time to understand the rules and to make preparations to ensure that they and their companies were compliant. In contrast, the Government have decided to implement the proposals with effect from only four months after their first announcement. The Professional Contractors Group has stated that"““on reflection we feel the timing of the measure’s introduction to be so swift as to be certain of causing a damaging and shambolic period of uncertainty””." It went on to say:"““It is proposed to introduce the new tax treatment with breathtaking rapidity: the final form of the proposed legislation will only be known about a fortnight before it comes into force, and the Finance Act itself will not be passed until some time later…The timescales involved seem extraordinarily short when one considers the burden this will place on workers who operate commercial relationships via a MSC””." Ann Swain of ATSCo described the deadline for implementation as unworkable and way beyond anything she had ever seen before. In conclusion, this evening we call on the Government to think again about schedule 3. I know that the Financial Secretary is a reasonable person, and I appeal to him to listen to what we have had to say. There is a risk of collateral damage, with many legitimate, genuine freelancers and contractors and their professional advisers hit by the fallout caused by the Government’s attempt to shut down abusive schemes. We think that the Government should take time for further reflection, consultation and analysis on how the proposals should be amended to prevent that unfortunate consequence. People from firms that advise small service companies are already winding up their businesses and handing out P45s as a result of the Bill. Given the risks involved, we call on the Government to take time to get this right, to consider the alternatives, to work out and clarify what these complex provisions mean, to try to avoid the mistakes of IR35 and to ensure that the provisions do not end up clobbering genuine, hard-working freelance workers who are merely trying to make an honest living and are already struggling with rising inflation, falling living standards and rising mortgage rates.