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Contracting wasteland in two years?

Can freelancing survive the barrage of tax legislation?

Back in June I attended a seminar run by my local branch of the Chartered Institute of Taxation. It was supposed to discuss the recent changes introduced by Finance Act 2017 but as many clauses had been removed due to the General Election, the format was partly changed. However, the off-payroll rules were afforded a mention and the speaker, a most respected and wise tax lecturer, voiced his belief that, in two years’ time, the contracting market will be decimated due to the new rules. His opinion was grounded in the confidence that the public sector rules would be rolled out to the private sector. A show of hands in the room, confirmed that the majority of my counterparts agreed with this view.

Contractors have taken a hammering from the Government over recent years, with the restriction on travel and subsistence (T & S) expenses, dividend taxation and, of course, the off-payroll rules. Yet, freelancers have survived over 17 years of IR35 and are a hardy and resilient bunch. There is, however, only so much they can take.

In the months of May and June of this year, 1,131 connected PSC’s went into liquidation, the cause of which was attributed to the T & S rules by the Insolvency Service. This cannot be considered to be an isolated event as in 2016, the same legislation caused 1,796 PSC’s to go to the wall.

Many contractors working within the public sector have, until recently, been faced with risk averse end clients taking a default position that all contractors fall within IR35, rather than actually taking the time and trouble to review working practices properly.

Accounting Web recently reported that statistics extracted in June from IT job board CW jobs showed that 71% of IT contractors suffered a reduction in their income by as much as 30% because of the off-payroll rules. Of 1,000 candidates surveyed, 47% said they had no choice but to leave the public sector, with the majority heading towards the private sector.

Anecdotal evidence that the majority of IT contractors working on HMRC’s Making Tax Digital programme resigned en masse, and 18 contractors who helped construct the ESS tool downed tools because of HMRC’s disgraceful treatment in seizing the opportunity to tar them all with the IR35 brush, is a signal that freelancers are beginning to fight back and not take this lying down.

There is an IT skill shortage within the public sector and they need contractors to bridge that gap and help deliver ongoing IT projects, MTD being a high profile one. Treating contractors as IR35 lepers will only serve to drive these highly skilled individuals into the arms of the private sector or even abroad, thereby jeopardising the future delivery of these projects.

If the off-payroll rules are eventually imposed upon the private sector, then there is a real concern that the UK will experience a brain drain and leave the contracting landscape barren. The quicker the Government recognise this and relax the rules the better it will be for all concerned.

By Andy Vessey

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5 thoughts on “Contracting wasteland in two years?”

  1. Big Bird

    HMRC / Treasury is getting what they deserve. They treat tax payers (real people) with contempt which fosters aggressive tax planning.

    When you try to slam a contractor on £500pd with IR35 they leave. Then they will fill the role with consultancy for £1000pd (don’t forget you have to pay their management overheads)

    HMRC makes sweet heart deals with corporations which pay a single percentage of the fair tax rate. While they chase a normal person for a few hundred and trying to squeeze every pence.

    Maybe the universe have mercy on us all from the likes of HMRC / Treasury. The trust in sovereign bonds is the ability to use force as means to enforce payment of debt.

  2. Ian T Price

    Articles like this really annoy me with their cherry picked stats. What is the long term trend for PSC dissolutions? How many PSCs were formed in the same period? There will always be underlying churn in all stats; to quote these isolated facts is meaningless.

    Addressing the point of the article, the one telling stat is how many contractors the HMRC has taken on, outside IR35, in the last month alone. It is over 100, piecing together the facts from the two recruitment agencies I work with.

    Freelancers are not only surviving but thriving in the Public Sector!

  3. J

    Whoever thinks Freelancers are “Thriving” in the public sector is deliberately attempting to mislead us. Projects are simply being cancelled.
    I occasionally now get asked if I’m interested in a public sector contract, always inside IR35 and at the old rate. I always reply with 500 outside, 1,000 inside, and I have given a special reduction on the inside rate.
    Now I work outside IR35 but the end client is still public sector. Rather a good job they give the work to me because if they were to do this job like they sort out tax we’d be in serious trouble.

  4. The Q

    We will not know the true extent of the state sector IR35 regime IMHO until at least two years after the event.

    And even then, the govt + taxman will be too stupid to understand what raw data they need to be collecting on state sector projects to do the maths, or will attempt to prevent that info getting into the public domain (as they did when FOI requests attempted to determine the financial ROI on the original IR35 regime) .

  5. Chris Maslin

    I imagine the private sector firms using contractors would be more resilient, ie more open to:
    – working with legal/insurance firms to ensure contracts and working practices are outside,
    – getting insurance policies to cover them against IR35 challenge.
    In reality it may just lead to HMRC going after the less well informed smaller firms using contractors, who won’t have had the budget/thought to get the above in place. Sad times for them if so.

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