Theresa May to Abolish Contracting Profession in April 2019

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Abolish Contracting Profession
Abolish Contracting Profession

Abolish Contracting Profession

According to 2017 budget leaks in the Times and Financial Times newspapers, Theresa May intended to abolish contracting profession in April 2018 as we know it.

They had a change in heart. They want a Consultation first. The roll out is now likely to be in April 2019 with he announcement in hte 2018 Autumn Statement.

It will certainly be a lot smaller marketplace than previously.

Chancellor Philip Hammond was to announce it in his November 2017 Budget according to the leaks.

It seems that the IR35 changes that the Government rolled out in he public sector in April 2017 are to be rolled out in the private sector as well according to budget leaks to the Times and Financial Times.

Unfair Tax Advantage for Contractors

The basic premise is, as Theresa May and Chancellor Hammond stated “It is unfair that a self employed person making £100,000 a year should pay less in tax than an employee earning £100,000 a year.

As we all know, this is not comparing like with like.

However, the Government think it is and are going to destroy their flexible workforce to right what they see as a terrible injustice.

No doubt the big consultancies, who would stand to benefit if there are fewer contractors around, implanted this idea in their heads.

That’s just as they did with New Labour whom they convinced that there was a major IT skills shortage and that IT labour would have to be imported in vast quantities.

So, what is going to happen now?

Abolish Contracting Profession – Public Sector IR35 Changes

Earlier the Government decided to change the way IR35 works in the public sector where they are the employer.

They decided that contractors would no longer determine their own IR35 status.

They decided that the Government department who hires them would determine each contractor’s IR35 status now.

If they got it wrong the department would have to stump up the tax, penalties and interest.

New HMRC Online IR35 Status Test

At the same time HMRC came out with a new online IR35 employment status test.

Departments would force contractors to take this with the results going to HMRC for future reference.

If they passed the IR35 test they could continue to use limited companies.

If they failed they would have to pay the IR35 tax.

Whoever paid them, usually the agencies, would extract the PAYE and national insurance before paying the contractors.

Abolish Contracting Profession – Umbrella Company Feeding Frenzy

What happened, in practice, was that, as most agencies don’t have payroll systems, most of the contractors inside IR35 went into umbrella companies.

Indeed there was an umbrella company feeding frenzy around March of 2017 for public sector contractors like locums, agency nurses and IT Contractors.

Some Government departments, e.g. the NHS and HMRC decide that they would no longer take limited company contractors – just to be on the safe side.

They forced contractors to dump their limited companies.

Took IR35 Test as Gospel

One agency said that 60% of their contractor failed HMRC’s new IR35 test.

Of course this test has no basis in law. The IR35 laws haven’t changed.

This is just HMRC’s perception of what IR35 is – and they are more than a little biased

However, Government departments took this test, and its results, as gospel when determining the status of contractors, locums, agency nurses etc.

Many locums and IT Contractors quit causing major problems in the NHS and in the delivery of computer systems.

Rolling IR35 Changes Out to the Private Sector

Now, leaks show that they Government want to roll this out to the private sector as well. It was to be implemented in April 2018 and announced in the November 22nd Budget.

However, after an online petition was set up by contractors, getting more than 10,000 names, the Government decided to pause and consult first. It’s now predicted to come into force in April 2019.

This will hit the private sector badly.

Some companies may refuse to use limited company contractors in the future rather than taking the risk of having to stump up the tax if they get it wrong.

Others will make contractors take the new online HMRC IR35 test.

As we know from the public sector, 60% of existing limited company contractors are likely to fail this test.

Future for Freelance Profession

So, what else might the Government have in store for us?

Well, Theresa May got the Matthew Taylor report on the future of self employment in June 2017 and may now implement it.

It seems that Mrs. May backs it to the hilt.

The main premise is that both Theresa May and Philip Hammond believe that “it is unfair that a contractor earning £100,000 a year pays less tax than an employee earning £100,000 a year”.

It is this ‘unfair and unjust’ anomaly that they intend to fix.

Contractors and Permanent Employees

Of course, we all know that a permanent employee and a contractor earning £100,000 a year are two different things.

There are all the benefits that a permanent employee gets like pension contributions, sick pay, holiday pay, maternity leave, national insurance, share options etc.

There is also the job security that the permanent person has and the contractor doesn’t.

However, this terrible injustice seems to have been implanted in their brains both by Matthew Taylopr and the big consultancies who see contractor as rivals in the marketplace.

National Insurance Increase for Contractors

The first instalment of it was to be to increase National Insurance for contractors.

So, we can get a flavour here of the tone.

They took this out of the Finance Bill after pressure from back benchers as it was not in the Conservative Manifesto.

Taylor says that he is disappointed that the Government took it out.

Much Stricter Rules on Self Employment

The report recommends much stricter rules governing what is self-employment.

It seems that they will ban employers now from having ‘control’ over freelance workers.

It recommends that a freelancer will no longer be able to do a job that a permanent person previously did.

So, they are basically going to define the role and say whether it is inside or outside IR35.

IT Sector the Main problem

They say that the problems arise mainly in the technology and delivery sectors but it is spreading.

This will affect the majority of IT contractors. Most of them come in to work on projects alongside permanent colleagues doing similar work to them.

The Government will no longer allow this.

These are what IPSE used to refer to derogatorily as bums-on-seats contractors.

Lack of Control on Contractors

In future, companies will have no control over the work done by what the Government sees as genuine contractors.

They will not allow them to give contractors the specification, tell them what to do or monitor their progress on a weekly basis as if they are an employee.

When a company, currently, wants to create a new computer system they decide how many permanent staff they will need going forward after the project is over.

They hire extra ones if need be.

Then they take on contractors for the rest of the work on the project.

They can get rid of them easily when the project is over. They won’t need them all then.

Similar Work to Employees

The bulk of the contractors will be doing similar work to the permanent staff on the project.

This is how the majority of IT freelancers operate.

Indeed, the estimate is that 90% of freelancers operate in this way.

It seems that the Government will no longer let them do this in future.

The company, through its project managers and project leaders, have control over what these contractors do.

These measures will surely abolish contracting profession as we know it and leave just a small percentage of current contractors.

Matthew Taylor’s Final Report

Matthew Taylor’s final report landed on Theresa May’s desk in June 2017.

The report said that companies are abusing the law by taking on supposedly self-employed workers for jobs that are normally done by permanent employees.

Companies are doing this to avoid paying sickness benefit, holiday pay, pension and maternity benefits.

Forced to Incorporate

The report said that they are unearthing evidence that shows companies telling people to incorporate rather than taking them on the payroll.

This is arrant nonsense. How many contractors do any readers know who wanted to take a permanent job but were coerced into becoming contractors and incorporating by client companies.

This is not normally how it happens at all, although I’m sure you might find the odd case of it happening.

Providing State Benefits

Matthew Taylor wants to provide state benefits to contractors such as sick pay, social security and maternity leave.

However, it seems that this is the part of the report least likely to be implemented.

I wonder why!

Stricter Definition of Self-Employment

It seems that there is going to be a new, more clearly defined, definition of self-employment.

It also seems that this will be much stricter than now.

If this report gets implemented, most current contractors will be under threat.

Government Don’t Know What They Are Doing

I don’t think the Government knows how contracting operates.

Why should companies take on a lot of new permanent staff when they only need them for a short time, i.e. when there is a new major project?

That is where contractors come in.

Their hiring is flexible and they will go when the project is implemented and staffing levels ramp down.

The fact that they are doing a similar job to permanent staff shouldn’t matter.

When, and where, will this all end.

Government attacks on contractors just seem endless and interminable.

It looks like they want to abolish contracting profession for good.

Perhaps they will allow contractors to continue contracting but through umbrella companies rather than PSCs.

Who knows!

This is just the latest attempt by the Government to Abolish Contracting Profession.

Where’s IPSE in all this?

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End

See also, Contractors Umbrella Company Future – Limited Companies Doomed.

and Public Sector Umbrella Companies IR35 Contractor Bonanza

Any freelancers / contractors / temps / locums etc. in any field who want to connect with me can do so here https://www.linkedin.com/in/gerry-mclaughlin-6b658a3/

2017 Budget Update

After leaks saying that he was intending to roll out the public sector IR35 changes in the private sector in 2018, the Chancellor announced that he was going to consult on this first.

Contractors set up a petition of over 10,000 signatures which meant it had to be brought to the attention of the Government. That was prior to the 2017 Budget.

They must have decided on a bit more caution.

There is a report coming out early next year which the Chancellor wants to see first.

So, it is likely that the implementation date for the roll out in the private sector is more likely to be April 2019.

May and Hammond haven’t changed their minds about what they see as the unfairness of contractors paying less tax than employees.

They just want to make sure they get it right.

Expect them to roll out in April 2019 in the private sector what they have already rolled out in the public sector.

Read More about this here – Contractor Budget Stay of Execution.

February 2018 Update – Dependent Contractors and Independent Contractors

So, the Government and HMRC have started their consultation process with the industry and contractors groups. They want to work out how best to implement the Matthew Taylor Report.

It recommends that there are two classes of contractor in the future – Dependent Contractors and Independent Contractors.

The former will be taxed like employees whereas the latter will be allowed to use Limited Companies.

A Dependent Contractor is someone who is given work to do by the company that uses him. For example, anyone working on a project who is given specifications to write computer programmes would be a dependent contractor.

That’s probably 90% of all IT Contractors.

Private Sector IR35 Changes

However, the real body blow to contractors is that HMRC stated at the meeting that they cannot wait till the final report comes out to implement the IR35 changes they made in the public sector in the private sector.

They see this as urgent.

Indeed the Government see this as urgent too as they want the money from contractors.

This will virtually abolish contracting profession as we know it decimating the industry.

So, this means that we will almost certainly hear plans to implement this in the private sector in the Budget in November 2018. We will see it implemented in April 2019.

This will force most contractors and freelancers to either pay the IR35 tax or join an umbrella company.

May 2018 Update

A judge blew a huge hole in IR35 with her verdict which massively favours contractors. To read more click on Judge Blows Huge Hole in IR35.

September 2018 Update

HMRC’s IR35 test called Check Employment Status for Tax (CEST) has been used 750,000 times now.

The results are as follows:-

54% – Outside IR35

31% – Inside IR35

15% – Indeterminable

As client companies will get financial penalties if they get it wrong they are highly unlikely to allow the Indeterminable contractors to continue to use Limited Companies.

So, that would make it 54% to 46%.

However, some clients may do the same as departments in the public sector and declare all their contract positions as inside IR35.

So, it is likely that half of contractors or more will no longer be contractors but will now become umbrella company employees.

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Comments

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21 COMMENTS

  1. I’ve been a freelance software developer for 20 years and my experience says that most of this article represents more from public perception than it does from reality.
    Do your writers not have actual industry experience?
    May’s proposals are akin the the original reasons given for IR35, i.e. the ‘Friday to Monday’ principal, and I actually think they are a good thing.
    This might lead to the end of “Contracting as a profession”, but certainlt not “Contracting as a business”.

    • Hi Paul, I can more than match your 20 years experience as a contractor and it is at all levels from software developer through Business Analyst, Project Manager, Systems Manager and then CIO in charge of a dept of 80 – all as a contractor. So, I do have ‘actual industry experience’. I disagree with your analysis that it is just reinforcing the original reasons for IR35. IR35 originally came about because newspapers (The Times I think) exposed companies who were laying off people on a Frday and starting them on a Monday as a contractors. This goes much further if implemented. They say themselves that they are going to change the definition of employment to be much stricter. This will affect all contractors who work on projects and who are controlled by the company through Project Managers etc. They don’t want to see anyone in PSCs any more. It will mostly umbrella in two years time. I wish there was a quoted one and I’d buy shares in it.

        • My old English used to say “Don’t just ay something. Say why you believe this to be true. You have signally failed to do this and so I can’t really respond on any points you’ve made. It’s jut a bit of a whine.

  2. All public sector contractors are forced to go under umbrella company after governments IR35 Shenanigans. Do you know how much take home that contractors will be getting from the Umbrella companies – 60%, 70% or above? Under limited company, most limited companies were getting 80-85% takehome. What’s the impact of this sudden transition on contractors takehome? When will this shenanigans gets to private sectors?

    • Not all Public Sector contractors. I’m working in the public sector on a defined role in a position that cannot be filled by a permanent employee. Having talked it through with the public sector body, we’ve reached an agreement of being outside of IR35, helped along by the HMRC tool. 80-85% sounds rather high to me though.

  3. …They will not allow them to give contractors the specification..
    so you have to do a project for us, but we cant tell you what it is
    at least it would give a big boost to the psychics industry

  4. Fellow contractors, don’t give up on yourselves because of this IR35. Take the leap of faith and travel outside this country where you would be paid and have a better life. As as long as this country remains as it is, they will leave the big corporations alone and come after the easy targets and that’s us the small guys.

    Jump and leave them to it. When there is a fatigue and project delays, do you now what? Surely, they might yearn for us.

  5. Can contractors work on a self-employed basis (ie no company in the middle either umbrella or contractor’s own)

    I’m concerned that with £600 a week in travelling costs to some contracts I need to recoup these somehow.

  6. I’d be intrigued to see the governments reaction to 10’s of thousands of small businesses closing down in a few months if this becomes law. Newspaper headlines such as ‘Theresa May closes 55,000 small businesses in 3 months’ might just make them think again but the damage could be done by that point.

  7. Its nothing short of barking mad. The public wont even notice it until it starts impacting on projects that affect thier pockets or thier health. By which time itll be too late. This is a two pronged thing; the first one to continue to hollow out the middle class in the name of equality, which has been part of the globalist drive for over a decade and the second to drive more work and revenue in the direction of the big systems integrators, solution providers and outsourcers in return for directorships and consultancies after leaving Parliament – the old Blairite revolving door.

    Its obscene, but IPSE are impotent and there is no opposition in the commons to speak of that is worthy of the name. All we are going to see is more of the same over the next 5 years. No matter how unfair all of this is, its not going to be bad enough for the proles to vote Corbyn in, even if he thought any different. And, thanks to the press, most of them will think we’ve had it coming for years as well.

  8. the frightening thing is that the alternative is that all of the business goes to either

    1) The big consultancies who make a massive mark up for providing the same contractor the company could have gotten directly for 1/2 the price

    2) The off shore companies who seem to have half of their team on shore for years at a time

    I dont understand how either of these is in the interest of the uk economy

  9. What about if an employer takes on a current contractor on a rolling monthly zero hours contract, paid by the day worked, through PAYE? That way the client still takes on a contractors for a temporary project, still pays a day raye, still only pays the contractor for days worked, has no obligation to employ contractor more than is necessary, and can let the contractor go at the end of the project. All this would give the same level of flexibility as now to both parties. On the plus side, no costly accounting for the contractor, and they accumulate holiday pay.

  10. I know. I updated it yesterday with fresh information after the budgt leak in teh newspapers.

    It’s true that a lot more people will have to go umbrella.

    That’s what happened in the public sector. It’s also true that rates may go up to support this. Rates for locum doctors went up by 6.3% in the 6 months after April this year after locums told us they had effective pay cuts of up to 30%.

    However, it is supply and demand. As happened with locums and the NHS, some contractors would have to get out of the market to decrease the supply pushing rates higher. If the supply of contractor stays the same then rates are likely to stay the same – despite the tax hike.

  11. I’m afraid this is a poorly argued article. The author is clearly emotive about the topic and this affects her/his ability to adequately and objectively write on the topic. I do think there are issues with the government’s approach to consultants and bigger issues with how their legislation is interpreted and implemented, with even huge government departments erring heavily on the side of risk averse at the expense of good outcomes as a whole. However, there are also issues with the contracting market that do legitimally need to be addressed and this article is only one sided. I’d appreciate a less emotive, logically argued piece so that contractors, companies, and decision makers could feel more informed and empowered to act. That way we can all hope for a better future vs. just listening to a whine.

    • It’s an old trick. If you can’t argue against the premise of an argument attack the person making it instead. As you’ve had just just a bit of a whine and as you have made no attempts to provide counter arguments there’s not much more that I can say.

      ” there are also issues with the contracting market that do legitimally need to be addressed”.

      That’s a bit woolly a you don’t state what those are. I think you’d get about 3/10 from my old English teacher.

  12. I am a long term “Career” contractor.

    I have had a number of perm jobs in my 15 years so far and a good number of those I have been made redundant / Company liquidated / Owner got arrested…in a bid NOT to sign on and cost the state…I go out and find a contraction job. I pay my taxes on-time, don’t put silly things like my family Christmas card post through the company as expenses, don’t claim breakfast of coffee on company, I work 50+hrs a week and get paid for 39hr

    I have seen this a number of times before 2015, 2008, 2004 and hope it doesn’t come to pass.

    I don’t get paid holiday, Travel, Sick, Tax credits, PENSION, Bonus, Shares, Insurances, Death in Service, Bank Holidays, Corporate Gym, Car, and many others . I take all these out of my wage, all this equates to me technically for every 12 months I work I only taking 9 Months gross and from there I pay all my taxes

    My industry sees me working all over the country at 6-12 months periods, supporting my young family. so whilst the person earning £100k with 20% bonus (Regardless of benefits) take home = £73k pa ….me as a contractor on £100k (No Bonus) takes home £77k pa if I work every day, but if I take off only 2weeks to spend with my young family I go to £72k….I take out 5% pension I go to 69K pa….I take out my insurances, bank holiday ETC!!! LIKE FOR LIKE IS NOT POSSIBLE.

    Let’s apply that logic to the congestion charge; a Prius with a curb weight of 2530lbs should pay the same as a 2500lb V8 Cosworth….instead of taking it on emissions as is logical… that same absurd logic can be applied to what Taylor is trying to spout

    IF you don’t look at the whole picture you cant take the correct action, as per any good project…Matthew Taylor obviously is bias only one way….and I am NOT going umbrella after a number of experiences, only to get worse if they are the only route, and I am not unsticking my family to move to somewhere where a perm job is available suiting my skill set.

    So alternatives or haven will have to be explored. Beggars belief

  13. Too many “employees” decided it was a good tax dodge and jumped on the bandwagon and ruined it for the rest of us who were providing a valuable professional service. I don’t mind the tax being controlled, fairs fair, but the assault on real expenses is a joke and it will inevitably destroy the industry. I simply will not be able to service a wider client base as now I am effectively restricted to working nearby only. This in turn does not allow my business to survive as there is not enough work in any one area to make it viable. The only difference between me and a large consultancy is size. I do wonder if this is more lobbying from massive IT consultancies trying to clear the field of independents so they can control the market.

    Many of us contract as we want to be our own bosses, have our own ideas, and want to progress into building up our own client base and products. We don’t want to be “one man bands” forever. It is a shame this is no longer possible. I don’t blame the government, I blame all the tax dodgers that have effectively ruined what was a perfectly respectable way to make a living.

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