The IR35 Tax Proposal: Correspondence until 1999/12/31

Prev: Correspondence up to 1st October 1999.

This page concerns correspondence until 31st December 1999 with MPs and government ministers in an attempt to deflect or block IR35.

I received a reply from Patricia Hewitt MP, ``Minister for Small Business and E-Commerce'':

Dear Mr Hart-Davis

Thank you for your e-mail message of 26 August regarding clause 70 of the Welfare Reform and Pensions Bill. This clause was debated on 20 July in the House of Lords and concerned proposals announced in the last Budhet to counter avoidance of NICs and tax through the use of personal service companies. I note that you sent a similar e-mail to my predecessor, Michael Wills, on 7 July and he replied to you on 15 July.

I have been taking a close interest in the developments regarding the proposals. As you may know, Dawn Primarolo, the Paymaster General, announced on 23 September that the original proposals are to be modified. I attach a copy of the Inland Revenue Press Release outlining the modified approach.

I hope that this modified approach addresses your concerns over the original proposals, particularly that they would damage the flexible labour markets where intermediaries are used. The new rules allow contractors the flexibility to arrange their business using an intermediary, such as a service company, while preventing the avoidance of tax and NICs.

Thank you for bringing your concerns to my attention.

[I am very sorry about the delay in replying.]

Yours sincerely,

Patricia Hewitt

Unfortunately, the new IR35 proposals, while slightly less bone-headed in some aspects, now limit the amount of profit a company can retain for investment to 5%---less than a tenth of my current ratio---with all monies beyond this being considered personal income tax for the earner of the fee (or tax evasion, presumably). I guess the Government will not feel inclined to press for the same style of assessment against the partners of large accountancy and management-consulting firms when they go to client sites...

Here was my email response:

Subject: RE: IR35
   Date: Thu, 7 Oct 1999 21:26:50 +0100
   From: Damon at work 
     CC: dhd

    Dear Ms Hewitt,

    Thank you very much for your letter of 5th October.

    The new IR35 proposals are an improvement over the original ones, but
    are still likely to kill the cream of the IT/finance/Net/ecommerce

    The main reason is clear: if a business is only allowed to retain at
    most 5% of its profits, how is it to invest in training, equipment,
    marketing, new projects, etc, to maintain itself, never mind keeping up
    with new technologies and growing and innovating and venturing to new
    areas?  I know I will not be able to; I pay myself less than 25% of my
    fee income (and no dividends or other evasions) and the balance
    continues to be spent on items such as those listed above.

    Virtually all the Internet success stories are from small start-ups and
    individuals, not large software houses with often-dismal records in
    innovation and delivery as the Government is only too aware at the
    moment I am sure; and IR35 suits these large companies by crushing the
    talent in the small ones.

    Please don't kill the goose that lays the golden e-ggs.

    Warm regards,

    Damon Hart-Davis     (
    ExNet Ltd            (

Lobby of Parliament

On 3rd November 1999 many people went to Parliament to lobby against passage of the IR35 measure in clauses 71 and 72 of the Welfare Reform and Pensions Bill in the Commons that day, myself and my business partner amongst them.

I waited in the lobby in the hope of meeting the two MPs I thought might be most able to help; here are my emails to them:

Subject: IR35: I would like to meet you tomorrow at the Palace of Westminster
   Date: Tue, 2 Nov 1999 14:42:17 GMT
   From: (Damon Hart-Davis)

    Dear Dr Tonge,

    We have corresponded before about IR35, and bearing in mind the
    proposed reinstatement of clauses 71 and 72 of the Welfare Reform and
    Pensions Bill and the serious effects it will have on my company as an
    enteprising Internet, e-commerce and finance business, I would like to
    discuss this with you again tomorrow.

    I would like to see you late to mid- afternoon tomorrow if you could
    name a time that would suit you.  I will `green card' you.

    I hope you will vote against clauses 71 and 72 however is best.

    Many thanks,

    Damon Hart-Davis
    MD, ExNet Ltd
Subject: IR35 and the Welfare bill
   Date: Wed, 3 Nov 1999 07:47:37 GMT
   From: Damon at work 
     CC: dhd

    Dear Mr Wyatt,

    We have corresponded before about IR35 and the devastating effect it
    will have on my enterprising Internet, e-commerce and finance
    business.  I hope that you will do whatever you can to avoid
    reinstatement of clauses 71 and 72 in the bill today.

    I hope that you can also encourage the Government to avoid bringing
    equivalent measures in via, for example, the Finance Act.

    I have pointed out to the e-Minister, Patricia Hewitt MP, that we could
    not possibly invest in new projects, such as the current one for which
    we are hoping to raise venture finance in the next month or so, on a
    maximum of 5% retained profits.  She has not yet answered this point.


    Damon Hart-Davis
    ExNet Ltd     

Neither MP was available but Derek Wyatt MP had already responded that morning with:

Subject: RE: IR35 and the Welfare bill
   Date: Wed, 3 Nov 1999 08:01:41 -0000
   From: Wyatt Derek <>
     To: "'Damon at work'" <>

    see for an update on world internet forum

    thanks for this and I talked to the lib dems alst night about this
    see this morning's FT

and Dr Jenny Tonge MP responded by letter (p2).

When the Bill went back to the Lords I again asked the MPs for help:

Subject: IR35: Welfare Reform Bill clauses 71 and 72
   Date: Tue, 09 Nov 1999 07:09:38 +0000
   From: Damon at play <dhd>

    Hi Dr Tonge, Mr Wyatt,

    Please do what you can to prevent these clauses passing today; I do not
    want to have to liquidate my business and kill my current e-commerce
    venture in April which I may otherwise have to do.


    Damon Hart-Davis

And, more in hope than expectation, I again asked Patricia Hewitt MP, ``e-Minister'' to help the Treasury see sense:

Subject: IR35
   Date: Tue, 09 Nov 1999 07:48:11 +0000
   From: Damon at play 

    Dear Minister,

    I must write to you again to urge you to help prevent passage of clauses
    [71 and 72] of the Welfare Reform Bill today.

    I have been reinvesting most of my consultancy income for several years
    to get to where I am today.  Right now I am engaged in a mobile
    e-commerce project paid for from client fees (I shall be at a major US
    investment bank today helping them with Java and related issues).

    IR35 will make it impossible to continue this bona fide leading-edge
    development and will put me out of business.

    I have never paid myself a dividend from this business, so why am I
    going to be penalised for a tax loophole that I have never exploited?

    Please stop this measure now and please point out to the Prime Minister
    and the Chancellor of the Exchequer what damage IR35 will do to real
    entrepreneurs such as myself.

    Otherwise I'm afraid that all the fancy talk about supporting e-commerce
    business is only that: I'm developing e-commerce and your government is
    stopping me.


    Damon Hart-Davis
    MD, ExNet Ltd
    CTO, TWisMO Ltd

No response from the e-Minister by the end of 1999.

IR35 index.


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