Search Magnifying Glass

What about the big guns?

Contractors call for tax focus on big business too amid potential IR35 changes

A fortnight in which the Treasury dropped their biggest hint yet that IR35 reform will be extended to the private sector, UK freelancer and contractors have called on the Government to apply greater pressure on big businesses suspected of tax avoidance too.

Just last week, Mel Stride, Financial secretary to the Treasury, told The FT that the possibility of extending new off-payroll working rules to the private sector was “an issue of fairness”, which all but confirmed contractors’ fears that further IR35 reform now looks inevitable.

Amid ongoing speculation, a staggering 95% of independent workers understandably want HMRC to look closely into the taxation of big businesses too.

Faced with the choice, contractors, recruiters and private sector companies would rather not see IR35 changes introduced. But given HMRC and Government seem intent to press on without acknowledging or learning from their recent failings, our sector needs clarity.

In addition to this, it’s entirely understandable that contractors expect big businesses to face the same kind of scrutiny from HMRC which they have been put through recently.

As millions of contractors prepare for potential IR35 reform, not to mention any new tax laws in the Budget this month, global companies with a large presence in the UK continue to find ways around paying corporation tax on these shores. An article published earlier this year suggest that multi-billion pound companies such as Vodafone, Gap, EE and Waterstones continue to find tax loopholes and declare losses to avoid paying corporation tax.

And just this week The Guardian reported that almost 40% of corporate investments deliberately channelled into tax havens, travel right through the UK.

This simply adds fuel to the fire that more must be done to combat tax avoidance from large businesses. Yet another tax grab on the self-employed would simply be short-sighted. Surely it’s time the Government focused on preventing foul play from big corporations?

In a previous Budget, The Chancellor spoke of rebalancing the tax system. Perhaps then, the Government should keep their promise and put big businesses under similar scrutiny which the self-employed have been made to endure.

Reports of continued tax avoidance by big corporates have justifiably angered contractors, who feel as though the Government is not behind them, as they gradually reduce the financial benefits of working independently without offering anything of real substance in return. This is an opinion held by a telling 95% of contractors, according a Qdos Contractor survey.

April’s public sector IR35 reform arguably contributed to 65% of independent workers’ opinion that UK does not currently have a ‘pro freelancing or contracting’ Party in power. Further amendments to IR35 legislation might well be the nail in the coffin for The Conservative Party.

Unnecessary changes to public sector IR35, along with the prospect of private sector changes, would have been the driving force behind 92% of contractors to voice concerns that they believe the Government see the self-employed as a soft target.

With 2million independent workers in the UK, freelancers and contractors contribute over £119bn to the economy each year. By the Government’s own admission in the past, freelancers are key to the economy, so why would they want to risk further jeopardising what is already a fractured and turbulent relationship?

As the UK heads into unchartered Brexit territory, you would think Theresa May and her Cabinet would be looking to give the UK self-employment a boost. Uncertainty surrounding the UK’s exit from the European Union is no good for business, while freelancers and contractors are clearly key to it. Some much needed support for the UK’s independent, flexible workforce wouldn’t go amiss. After all, it would be in the Government’s own interests.

Despite persistent rumours which surround IR35 legislation and the future of the tax system, 61% of contractors remain optimistic that this way of working can not just survive private sector reform, but actually continue to grow.

That said, it’s clear the Government needs to address the concerning disconnect between themselves and UK contractors, who, at this very moment are bracing themselves for a rise in IR35 investigations and inaccurate contract assessments should reform hit the private sector.

One way to alleviate some of the stress that together HMRC and the Government has caused freelancers and the self-employed, is to fair up the system. If the self-employed are quite obviously being targeted, then why isn’t more done to actively tackle suspected tax avoidance by big businesses too?

By Contractor Weekly

Comments

Add a comment

17 thoughts on “What about the big guns?”

  1. The Q

    Yet more blubbing about tax avoidance.
    IR35 is about a very specific form of tax avoidance :

    DISGUISED EMPLOYMENT

    The government that defines this as disguised EMPLOYEE = disguised EMPLOYER, and punishes the employer accordingly via taxation, is the one that collects more tax and changes the UK worker framework for the better.

  2. Soprano

    Let’s not try argue on the basis of two wrongs make a right. This measure, if extended eventually, will harm big business as much as contractors. Harming business in the UK will be to no one’s benefit.

    Here’s the “tax gap” arising from “avoidance”: http://www.contractoruk.com/news/0013242avoiders_arent_tax_gap_main_contributors.html

    Compare now to the figures for evasion and various forms of illicit activity, as well as outright error. The real problem is the government’s unrestrained level of spending, and the Tory government’s inability to rein this in. Taxing more isn’t going to help – in fact, it can shrink economic growth. I also think there are severe moral issues with the notion that the government is due your income and anything not being paid is some “gap”. There needs to be a much stronger justification of spending in relation to tax levels, and at present this is nowhere to be found. Instead, we’re simply asked to stump up more whilst the usual twaddle about “our public services and NHS” is regurgitated, without any reference to whether this money is being spent effectively or why existing levels of waste in government spending – the most blaring example being foreign aid – cannot instead be trimmed.

    Forcing individuals who are not employees but not quite the same thing as a typical business, either, to pay the same tax as an employee (as if those rates are themselves “fair”), whilst enjoying none of the commensurate benefits, is mind boggling and will ultimately kill contracting off. Maybe the government desires this, but it will be neither to its benefit nor to that of its big business constituents, who are already scratching their heads at the utter level of incompetence emanating from Westminster in dealing with Brexit.

    However…

    “A fortnight in which the Treasury dropped their biggest hint yet that IR35 reform will be extended to the private sector, UK freelancer and contractors have called on the Government to apply greater pressure on big businesses suspected of tax avoidance too.”

    I think we’re jumping the gun here. It may or may not happen. I think eventually the Treasury will be tempted to extend. Will it be this April? Unlikely. Too little time for business to prepare and a lot for it to protest very vociferously. It was not applied to the public sector until 1 1/2 years after its conception, and even a year afterwards, the results are not particularly great, even from the Government’s point of view, since whilst it may be netting a bit more tax, public sector costs are up and ability to resource talent curtailed. What I see right now is a trial balloon. Whilst it is quite right to react AS IF this may happen imminently, the chances of it doing so are not high.

    “Despite persistent rumours which surround IR35 legislation and the future of the tax system, 61% of contractors remain optimistic that this way of working can not just survive private sector reform, but actually continue to grow.”

    What’s the point of even stating this? Yes, people may press on even in more adverse circumstances. Let’s not give them the illusion, though, that this means it’ll all be all right, since this is exactly how HMT will interpret such statements.

  3. Soprano

    Let’s not try argue on the basis of two wrongs make a right. This measure, if extended eventually, will harm big business as much as contractors. Harming business in the UK will be to no one’s benefit.

    Here’s the “tax gap” arising from “avoidance”: http://www.contractoruk.com/news/0013242avoiders_arent_tax_gap_main_contributors.html

    Compare now to the figures for evasion and various forms of illicit activity, as well as outright error. The real problem is the government’s unrestrained level of spending, and the Tory government’s inability to rein this in. Taxing more isn’t going to help – in fact, it can shrink economic growth. I also think there are severe moral issues with the notion that the government is due your income and anything not being paid is some “gap”. There needs to be a much stronger justification of spending in relation to tax levels, and at present this is nowhere to be found. Instead, we’re simply asked to stump up more whilst the usual twaddle about “our public services and NHS” is regurgitated, without any reference to whether this money is being spent effectively or why existing levels of waste in government spending – the most blaring example being foreign aid – cannot instead be trimmed.

    Forcing individuals who are not employees but not quite the same thing as a typical business, either, to pay the same tax as an employee (as if those rates are themselves “fair”), whilst enjoying none of the commensurate benefits, is mind boggling and will ultimately kill contracting off. Maybe the government desires this, but it will be neither to its benefit nor to that of its big business constituents, who are already scratching their heads at the utter level of incompetence emanating from Westminster in dealing with Brexit.

    However…

    “A fortnight in which the Treasury dropped their biggest hint yet that IR35 reform will be extended to the private sector, UK freelancer and contractors have called on the Government to apply greater pressure on big businesses suspected of tax avoidance too.”

    I think we’re jumping the gun here. It may or may not happen. I think eventually the Treasury will be tempted to extend. Will it be this April? Unlikely. Too little time for business to prepare and a lot for it to protest very vociferously. It was not applied to the public sector until 1 1/2 years after its conception, and even a year afterwards, the results are not particularly great, even from the Government’s point of view, since whilst it may be netting a bit more tax, public sector costs are up and ability to resource talent curtailed. What I see right now is a trial balloon. Whilst it is quite right to react AS IF this may happen imminently, the chances of it doing so are not high.

    “Despite persistent rumours which surround IR35 legislation and the future of the tax system, 61% of contractors remain optimistic that this way of working can not just survive private sector reform, but actually continue to grow.”

    What’s the point of even stating this? Yes, people may press on even in more adverse circumstances. Let’s not give them the illusion, though, that this means it’ll all be all right, since this is exactly how HMT will interpret such statements.

  4. Soprano

    For those interested and for the little good it will do…

    https://petition.parliament.uk/petitions/204121

    Worthwhile spreading the news.

    • Ex Contractor

      They’ll do it eventually, I have little doubt.

      I sold up, downsized my house and jacked in contracting early after 20 years. I would have continued for at least another ten but fed up with the constant government attacks, cheap imported labour and the steadily worsening clogged up roads.

      I now work up to £12,000 a year and then stop. I pay almost no tax and NI and claim as much tax credits as I can. I work a couple of months a year and then do what I want. I am much happier and live a good life on a grand a month.

      Doubt I’d ever go back to the ratrace with the government attacking me from every quarter.

  5. Dirko

    Raising government revenue can be enormously simplified if gathered on expenditure only. With exemptions. Not beyond implementation

    • Soprano

      If you mean a sales tax, I would definitely support making this (or the VAT) the main and only tax. It’s not beyond implementation and could result in more transparent, lower rates, however they enjoy their current labyrinth.

  6. Dirko

    HMRC still need to tax the “big guns” equitably

    Because, it appears, they do not possess the testicular fortitude to go after them with the same vigour they employ to go after the “plastic toy guns”

    Guessing that is because the small are weak and fragmented and an easy kill

    Clearly scared of the bigger beasts

    (pardon the mixed metaphors)

    • The Q

      > Guessing that is because the small are weak and
      > fragmented and an easy kill

      > Clearly scared of the bigger beasts

      Only financially.

      If you could go down to Tesco and buy a commodity tax law representation as capable as those used by big
      business, the taxman would leave you be.

      When HMRC fight big business in court, taxpayer money
      is funding the legal costs (which for these cases is
      large) . If HMRC lose, they have now added those costs
      to the tax that they failed to collect.

      So they become risk-averse, and do cosy settlements
      with big business rather than “all or nothing” .

      I have been told that in Ireland the situation is
      very different. Their taxman allegedly goes after all
      and sundry with extreme zeal regardless of cost or potential outcome.

      • Soprano

        So they’re even more maniacal in grabbing tax? The thing is, Ireland at least has a lower corporate tax. Perhaps it’s a good thing hector isn’t that daft.

        I don’t support witch hunts of big business, personally. Britain needs to maintain a competitive, low tax environment and the corporation tax is, at present, about the only tax going in the right direction – down. What should be reviewed is the level of spending this constant scrounging for pennies is meant to support.

        The loss rate of hector in court even with the “little” guy suggests to me they don’t do a particularly good loss/benefit calculation before engaging in it. However, the figures are as follows:

        “In fact, out of the £34billion between what HMRC says is due and what it has collected, just £1.7bn is down to avoidance, said the Chartered Institute of Taxation.

        Almost £14bn of this now lowest ever tax gap is down to illegal activity — made up of the hidden economy (£3.5bn); evasion (£5.2bn) and criminal attacks (£5.1bn).”

        So, let’s say evasion and avoidance are the areas it could pursue cases with big business, knowing that avoidance IS legal and therefore harder to challenge. Where is this magic money pot they envision? In relation to spending, this is diddly squat. The reason they probably don’t push too hard is because the potential rewards aren’t really as great as the rhetoric would suggest. Now we get the OTS saying that not lowering the VAT threshold is somehow “costing” the Treasury money, nevermind that it is just another tax grab that will increase cost of living with very dubious benefits to show for it.

        With Brexit, the UK needs to position itself as a dynamic, competitive economy. The current outlook of the Chancellor, by contrast, wouldn’t go amiss in the days before the 70s, before the Keynesian models blew up in the face of the central planners.

    • Soprano

      It’s likelier than not because avoidance isn’t as high as they try and make it out to be… Of course, “revenue protected” due to IR35 is the laughable figure of £400m p.a. and this figure is unsupported and plucked out of thin air. The reality is that the government has lost its grip on spending. Taxing more isn’t going to manifest the income they want to spend spend spend more.

    • Soprano

      It’s likelier than not because avoidance isn’t as high as they try and make it out to be… Of course, “revenue protected” due to IR35 is the laughable figure of £400m p.a. and this figure is unsupported and plucked out of thin air. The reality is that the government has lost its grip on spending. Taxing more isn’t going to manifest the income they want to spend spend spend more.

  7. The Q

    > So they’re even more maniacal in grabbing tax? The
    > thing is, Ireland at least has a lower corporate tax.
    > Perhaps it’s a good thing hector isn’t that daft.

    The Faustian pact that Ireland has made with the IT
    giants etc may mean their taxman is sufficiently cash-rich
    to behave so.

    “I don’t support witch hunts of big business, personally.”

    Witch hunts, like taxation, should be as equitable as
    possible. 🙂 I suffered the witch hunt of IR35 headed by
    Primarolo the poll tax dodger, so why should big business
    be denied the joy of this ??

    “Britain needs to maintain a competitive, low tax environment and the corporation tax is, at present, about the only tax going in the right direction – down.”

    If the corporate tax burden is spread across all of big
    business, then by definition the CT rate can come down.
    This is a paradox that big business do not seem to
    understand with their “me me me” industrial tax
    avoidance.

    “What should be reviewed is the level of spending this constant scrounging for pennies is meant to support.”

    Govt should always be under scrutiny on its costs.
    When the nation is told that X pounds is needed, I
    expect proof that the value is X under the most
    efficient operating conditions and not because an
    unacceptable proportion of that amount is lost as waste.

    > Almost £14bn of this now lowest ever tax gap is down
    > to illegal activity — made up of the hidden economy
    > (£3.5bn); evasion (£5.2bn) and criminal attacks (£5.1bn).”

    Call the tax take on the above R1/R2/R3 respectively.

    I would like an honest dialogue with HMRC on the ROI
    of pursuing any given Rn. Tell us what you think the
    annual costs Cn are going to be for pursuing Rn.

    At the end of the year, we will judge the real values of
    Rn/Cn, and then take stock on ways forward.

    We know anecdotally that for n = IR35, Rn is far below
    what the IR claimed would be recovered, and God knows
    what Cn has been.

Leave a Reply

Your email address will not be published. Required fields are marked *