Finance Bill

My hon. Friend, who brings a lot of experience to our debate thanks to his professional capacity before he joined this House, is right: ““freelancers”” is a colloquial not a legislative term. The test will be whether individual workers run their own company to gain the advantage of taking the profits out of it as dividends. If workers are not running their own business they are likely to be employees, and are therefore likely to be disguising their employment status and not paying the tax that they ought to be paying, as other employees do. It is clearly unfair if two workers carrying out the same work pay different levels of tax and national insurance because one is operating through a structure provided by a third party that fails to apply the rules correctly. There is also the further concern that some workers are encouraged, or even forced, to use MSCs without understanding that they may lose their employment rights. The Government therefore set out objectives and detailed proposals for change in the pre-Budget report in December. During the consultation, almost all those who commented agreed that the existing rules are not being applied and that action on MSCs is necessary. In its response, the Chartered Institute of Taxation said:"““We acknowledge that some MSCs are responsible for significant underpayments of Pay as You Earn and National Insurance Contributions…we further acknowledge that this is a serious issue that HMRC cannot ignore.””" Some respondents commented that their businesses were being undercut by those who did not comply. An employment agency for teachers wrote:"““This has put us at a considerable commercial disadvantage to other employment businesses which have used MSCs to pay their workers…As we also pay employers NIC on our teachers’ earnings our margins are significantly lower than those recruitment businesses which choose to use MSCs.””" As I said earlier, I am dwelling on the consultation process to emphasise how deliberate we have been in formulating our proposals. During the consultation, officials from the Treasury and HMRC met a wide range of interested parties, and the provisions in clause 25 and the related schedule reflect many of the key concerns raised during that process. I express my appreciation, and that of the Government, to the many people who have offered us technical advice and support, and indeed challenge, to get our proposals in good shape and ensuring that they are targeted on meeting the policy objectives we set out. As we pointed out in the consultation document, getting the definition of MSCs right requires great care. On the one hand, we are determined to end the abuse of the tax system by MSC schemes, while on the other we recognise the advantages—not least in the performance of the British economy—of a relatively flexible labour market. Legislation should ensure that contractors can continue to operate through appropriate structures and obtain the professional services and support they need. People genuinely in business on their own account providing services through service companies will not come within the MSC definition.