Off Payroll Crackdown | How UK Contractors Can Fight Back

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David Cameron whose father and father-in-law are tax avoiders
David Cameron, scourge of contractors, whose father and father-in-law are tax avoiders

How Contractors Can Fight Off Payroll Crackdown

It looks as if there is going to be an off payroll crackdown on contractors.

The Guardian and the Mail announced that the Chancellor is going to force all contractors to go on their client company’s payroll after they have been there for just one month.

As virtually all contracts are for more than a month, this effectively means that all contractors will have to go on the payroll of their client companies.

The Chancellor wants to abolish intermediaries, i.e. those entities that stand between the contractor and the agency or end client. Intermediaries include both umbrella companies and personal servcie companies.

We not know, yet, if contractors will get the benefits that the company’s employees get like sick pay, holiday pay and pensions etc.

If they don’t, it means that every company in the country who uses contractors will have to change their payroll systems with all the expense that this will incur.

Client Companies and Contractors Don’t Want It

Clients don’t want to take contractors onto their books and contractors don’t want to be on their books.

It’s just the Hammer of the Contractors, Chancellor Osborne and his Conservative Party who want this to happen.

Contractors Groups like IPSE (ex-PCG) are up in arms about it and are asking all contractors to write to their MPs.

APSCo, who represent the UKs’ recruitment companies, are up in arms about it also. Their agencies members may have to tale contractors onto their payrolls and make them employees if companies taking on contractors won’t.

So, I’m told, are the CBI who represent the UK’s companies who will have to take on the burden of taking contractors onto their payrolls.

Chancellor Doesn’t Care About IPSE and APSCo

The Chancellor came up with this policy without consulting any of them.

They will all protest about it to the Chancellor.

However, it will fall on deaf ears.

He would have expected this cacophony from what he would see as vested interests.

Chancellor George Osborne - tax avoider
Chancellor George Osborne – a tax avoider too

Off Payroll Crackdown Fightback

However, to me, the answer is simple.

As Deep Throat said during Watergate “Follow the money. Follow the money”.

The reason why the Chancellor won’t change his mind is that he wants the tax money.

I think that I read somewhere that he expects to make £400m from this change.

So, that’s where UK contractors, along with agencies and client companies, should fight this battle.

Key Battleground for Contractors

This the key battleground.

They should fight this battle in the only area where the Conservatives and the Chancellor are vulnerable.

It’s the money, stupid!

offshore umbrella companies
Offshore umbrella companies or onshore umbrella companies

They are only doing it for the money.

And, if there’s no money?

Companies Will Employ Fewer Contractors

We believe, as do others, that the Conservatives and the Chancellor will actually lose by this.

If companies take on fewer contractors, which is highly likely, or take them on for shorter periods (e.g. a month), then there is going to be a lot less tax and national insurance that contractors will pay.

This is going to result in less money coming into the Treasury and not more.

The Chancellor is making one assumption in his calculations – and that is that the number of contractors remains static.

If he is correct then he wins and gets the £400m extra tax that he is eexpecting.

if he is wrong, and the numbers of contractors goes down, then very little of that money will make its way to him and the Treasury. Indeed, he may even lose by it.

Off Payroll Crackdown Affecting the UK Economy

Another factor is that the UK economy will suffer.

The current model of the use of contractors by companies evolved becasue this is the model that suits companies best. When they have a peak of work, i.e. during the development of a major project, they can take on extra people, i.e. contractors, for the duration of the project, and then get rid of them easily and inexpensively when the project ends and they need less people.

The model is that they keep a basic amount of permanent staff for the long term and increase the headcount by the use of contractors when there is a peak of extra work to be done.

If the Chancellor makes it harder to take on short term workers, by forcing companies to take them on as staff, then he will hurt companies. His new model doesn’t suit them like the current model does.

However, let’s leave that to one side, for the moment, as it is not easy to quantify the effect that the Chancellor’s change will have on the UK economy.

Fewer Contractors Will Be taken On

However, there is something that is a lot easier to quantify – and that is how much tax the Chacellor will lose by implementing this.

All it needs is for someone to take a poll of companies who use contractors, and ask them how many contractors they have now, intend to take on next year, and how many they would use next year if this change came into effect.

The CBI could poll their member companies on this.

Recruitment agencies could poll their client companies on this.

Umbrella Companies Under Threat

Umbrella companies could poll their client companies on this, i.e. those companies that use their umbrella company contractors. After all this is an even more existential threat to umbrella companeis than it is to contractors.

There’s an umbrella company umbrella organisation who could do this too.

Maybe even contractors group IPSE (ex-PCG) could commission a poll to ask this question.

David Cameron and IT Contractors
David Cameron and IT Contractors existential threat

Chancellor’s Assumption on Off Payroll

The Chancellor’s assumption is that all companies will take on the same amount of contractors so he’ll get his £400m.

If a poll proves that assumption wrong and that he will get a lot less, nothing at all or even loses money by bringing this in, then he loses all justification for bringing this change in.

He’s only doing it for the money – and if there’s no money in it, it would be stupid to force a model on the UK’s companies that they don’t want.

I would be willing to bet heavily that a poll asking companies how many more or fewer contractors that they would hire after this change was brought in would show that the Chancellor would lose mony by doing this.

I think it is a racing certainty.

Off Payroll Poll Needed

So, is there anyone out there willing to poll client organisations to see what effect it would have on their hiring of contractors in the future?

It’s the only way that the Chancellor would change his mind. That is if someone showed him that it wouldn’t bring in any extra money and may even cost money.

After they take the poll they should ask the Treasury for their calculations on how they came to this figure of £400m. They could then factor in the number of contractors there will be after the changes and then come up with a new figure.

If it came up with a figure that was less than the Treasury is getting now then that would be game, set and match to contractors and the Treaury, Chancellor and Conservatives must concede defeat.

How would they get a bill that was going to lose them money through Parliament?

Off Payroll Crackdown Battlefield

It is crucial that contractors fight the Chancellor, Treasury and Conservatives on the only battlefield where we can win – and that is in the area of money and how much more (or less) that this tax will bring in.

But is there anyone out there who will do the polling of companies that is needed?

If you know anyone that might, put this article in front of them.

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