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Media forecasts end of PSCs

But no need to panic just yet

rip pscIf the Guardian and the Daily Mail are to be believed, government ministers are considering forcing those contractors who work for a client for more than one month, onto the books.

Such a move, similar to the BBC’s treatment of workers, is estimated to affect 90% of contractors and save the exchequer £400 million in lost revenues.

According to the newspapers’ sources the plans could be announced in the Autumn Statement later this month.

Any contractor working for an organisation longer than one month will be considered an employee and it will be businesses themselves, rather than individuals, who would be responsible for marshalling the rules and deducting the necessary PAYE tax and NIC. To assist them in deciding whether a contractor should be reclassified as a member of staff, end clients would be able to refer to an online checklist provided by HMRC. The burden would be transferred to the agency however where the worker is supplied by them.

Contractors working for multiple companies simultaneously or builders doing one job on a private house would be exempted.

Examples of professionals such as lawyers working for one company for a short period of 2 months appear to have convinced ministers that all freelancers should be treated as employees and pay employment taxes. One government source told the Guardian,

“This is about fairness in the tax system. It is just not fair to have people in the same company doing the same jobs paying different levels of tax.”

That statement just about sums up the blind ignorance of some ministers who are incapable of considering the impact upon PSCs of corporation tax, together with the denial of NIC employment allowance, the introduction of the dividend tax and removal of travel expenses all from April 2016.  Furthermore, in most instances the contractor has been hired for their particular expertise and isn’t performing the same job!

Ministers want to see how businesses respond to the proposals at this week’s annual CBI conference before making any final decision. I do not see businesses, who value the flexibility that freelancers provide them, giving this the thumbs up.

Such a proposal would also fly in the face of the comments made in the IR35 discussion document in which we were promised a full consultation should the government decide to proceed with reforming the rules. However, it wouldn’t be the first time the government stabbed the taxpayer in the back.

It is hoped that these reports are more to do with sensationalistic journalism rather than firm concrete propositions but we will all know more by November 25th.

By Qdos Contractor

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15 thoughts on “Media forecasts end of PSCs”

  1. Andrew Weighell

    What about the unintended consequences? Subcontracting work overseas = Zero tax paid – zero.
    Increased number those coming to the UK to take advantage of Working Tax Credits and other benefits to take work that is not longer economic to a UK contractor.
    More ex-contractors signing on when then are not working?

  2. Kevin R

    “and save the exchequer £400 million in lost revenues”

    So peanuts in comparison to what HMRC is losing to the likes of Google, Apple etc etc.
    I already pay more tax than Facebook paid to HMRC last year.

  3. bsol

    “This is about fairness in the tax system. It is just not fair to have people in the same company doing the same jobs paying different levels of tax”

    No mention then of the fact contractors forego holiday pay, pension contributions, and other employment benefits. Again, the Government showing how short sighted they can be in this argument. F ing ridiculous.

  4. David Aitken

    I’m 71 and still contracting, can I claim the dole?

  5. Gary

    “sensationalistic journalism” propagated by CW :/

  6. Craig

    HMRC are not taking into account the large number of specialist accountancy firms that will lose considerable revenue if this goes ahead and as such contribute considerably less corporation tax and PAYE themselves to the system.

  7. steve monk

    If this goes through it will basically in a roundabout way make freelancing, contracting and starting a business illegal in the UK.

    I wrote to my local MP last night asking for clarification on this matter and asked why my business pays more in Corporation tax than most large corporates including George Osbornes own family business which has been using offshore accounting to avoid tax. this is well reported in the MSM

    Part of my email to my MP…

    ‘I run an entirely legitimate company which fully meets its tax obligations and holds full indemnity insurances which are required by my clients. I strongly resent the continued implication from this Government that small businesses like mine are avoiding tax. To be very frank my company has paid more in corporation tax this year than Facebook, Uber, Osborne & Little and AstraZeneca combined. Something is seriously wrong if large corporations are paying zero corporation tax.’

  8. rayman

    Thing is, all this bleating about Starbucks et al paying little in the way of tax doesn’t really cut the mustard.

    These companies are wealth creators and provide thousands of jobs for people who then go on to pay their taxes. Not to mention the amount of VAT the products they sell bring in.

    Contractors do the same jobs as permies (ok, without the benefits but that’s why we can charge a higher rate) but pay much less tax.

    Contractors aren’t businesses or entrepreneurs. They’re skilled temps. No more, no less.

    We’ve had it good for far too long and many of us have taken the p*ss for far too long. Especially the greedy idiots who used aggressive tax avoidance (Montpelier users, i’m pointing my finger at you). This was an inevitability.

    Unfortunately, the axe seems to have swung too far the other way and will kill off contracting dead.

    Better start thinking about a plan B guys.

  9. Simon

    My wife and I, both fee-earners,have now given up working and will live on our pensions. If it wasn’t for IR35 we would have worked for another decade and paid tens if not hundreds of thousands in taxes – VAT, PAYE, NICS, Corporation Tax,tax on dividends. We now pay basic rate tax. HM Gov have therefore lost out. Are we the only golden goose they have killed?

  10. Malcolm Pringle

    if this was followed though the flexible workforce would die
    There would be no point in working as a contractor and suffering the consequeces of being out of work for sometimes months at a time. It would only make sense to work on a permanent basis from then on. This would put a strain on the available job market and also impact the dynamic flexibility of Companies to employ contractors. The follow on from this would decrease producitivity thereby causing the goverment less revenue in the long run. simply look at Europe for evidence of their sluggish economys

  11. Tim

    Even if contractors pay the same tax as permanent staff, the day rate of a typical contractor is still atleast 50% more than the equivalent permanent employee salary.
    So it would probably still be worthwhile working on a contract basis.
    But perhaps companies will have to pay the contractors a salary instead of a day rate which could then really change things as perhaps its unlikely companies could have such a big difference in salaries.

  12. GJ

    Recession 2016 just started as a result of some bad decisions by Conservatives’

  13. Mark Davison

    Clearly, this is a knee-jerk reaction without understanding the nuances and the consequences of such a proposal.

    Even though PSCs are legal entities, under these proposals, they will hardly exist. The interim market will completely collapse as well as businesses supporting the market. Rather than entering into a contract to provide services, contractors would be entering into a contract for employment and therefore as an employee, contractors would be protected under the raft of employment law. Contractors would have no corporation tax liability, hence the reduction of tax revenue to the Exchequer. No doubt, the new rules would apply to temporary staff too. All temporary and interim staff would need to be classed as employees. IR35 would be mostly irrelevant. Contractors would need to be classified on the end client’s payroll that will create an extra bureaucratic burden to the end client.

    Such a decision has two perverse consequences. First, it would hinder flexibility for the end client, who simply requires a contractor to come in and deliver to their scope of work and then leave, crucially without any employment liability. Secondly, the amount of tax collected would, in fact, reduce because contractors would no longer need to pay corporation tax.
    Finally, there is a fundamental principle of fairness and equity. If contractors are to be taxed as employees, then they should be protected under the full range of employment legislation, which is the very thing end clients avoid by engaging a contractor.

    I hope business leaders make these points at the CBI conference.

  14. Brian Butterly

    Excellent comment – fully agree

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