Personal Service Companies

Part of Oral Answers to Questions — Treasury – in the House of Commons at 12:00 am on 25th January 2001.

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Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 12:00 am, 25th January 2001

The hon. Gentleman has pursued this subject for some considerable time. He needs to appreciate three main points. The proposal to which he refers, commonly known as IR35, does not attack entrepreneurs or those who run their companies. Nor is it targeted at the IT industry. Its purpose is to deal with a specific issue. The use of service companies meant that people who, in any other circumstances, would have been employees, were able to reduce their liability to tax. To give an example, a service company worker earning £50,000 a year had been previously paying about 21 per cent. tax and national insurance compared to an employee doing exactly the same work paying 35 per cent. The encouragement provided to entrepreneurs in this country is well known, given the reforms undertaken by the Government—and, indeed, that is recognised, even by the press, in the surveys published today.