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.
It will certainly be a lot smaller marketplaces than previously.
Chancellor 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 nurse 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.
This is just the latest attempt by the Government to Abolish Contracting Profession.
Where’s IPSE in all this?
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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.
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