IR35 Off Payroll Boost
The Government has said that the regulations over Off Payroll have been a huge financial success for both the Treasury and for HMRC.
They claim that it has brought in an extra £1.2 billion in tax revenues.
They are patting themselves in the back for their cleverness.
But is it really a financial boost for the Government?
Off Payroll Cost / Benefit Analysis
This is a very one-sided Cost Benefit Analysis.
It is showing only the financial benefits to the Government and not the costs.
Surely such a massive change on the way companies operate is going to have an impact on the costs side of things.
Companies used to be able to take their own decisions on the way they operated.
Contractor / Employee Ratio
As they are closest to their own businesses they knew the best ratio of contractors to permanent employees which would run their projects and their businesses most efficiently.
Now the Government’s off payroll rules, where companies have to decide whether their contractors are inside of IR35 or outside under threat of financial penalties if they get it wrong, has forced their hands.
To be on the safe side they are using fewer contractors and some are using none at all. This applies to some of the biggest companies in the UK.
Companies were using previously the optimum contractor / employer ratio that suited their businesses best.
Now they are having to use a contractor / employee ratio that is different from their previous ratio when they were allowed to run their own businesses in the way that the saw as most efficient.
UK Companies Less Efficient Because of Off Payroll Rules
If all of the UK’s biggest companies are being forced to operate sub optimally this is going to hit their ability to compete with international rivals. This would lead to fewer profits and less corporation tax paid to the Government.
Could this straitjacket imposed on all our major companies be at least partially responsible for the fact that the UK is growing at a lower rate than all of our major international competitors?
Off Payroll Questions Government Must Answer
If the Government really want to do a proper Cost / Benefit Analysis to see what the total cost is to the country by their IR35 Off Payroll rules then they have to answer the following off payroll questions:-
- What is the cost to the country if all the UK’s major companies are not allowed to hire as many contractors as they think is optimal for the success of their businesses and projects. Why not ask a few of those companies and extrapolate from there – or are you afraid of what they might say?
- Many older contractors took early retirement rather than taking, effectively, pay cuts. They are the most knowledgeable and experienced contractors in the country. That knowledge and experience is now no longer available to our top companies. What is the financial cost to our big companies and the cost to the Government?
The Government’s claim is fraudulent.
Local Shopkeepers Understand Better Than Government
This is like a local shopkeeper claiming that when he sold an item for £5 that he made £5.
If he had to pay his suppliers £4 for the item then he only made £1 when he sold it.
This is easy to understand. So, how come the Government doesn’t understand this?
When working out something like this you have to subtract the cost from the benefits before publicising what you have made from something.
UK Companies Forced to Operate Less Efficiently
Surely the Government doesn’t believe that there is no cost at all when you force all of your major companies to operate in a way that is less efficient than the way they used to run their companies in terms of the contractor / employee ratio.
Surely if you chase many of the UK’s most experienced and knowledgeable contractors into early retirement there will be a cost to Business UK.
That is why I say their claim is fraudulent.
A corner shopkeeper would understand why.