The off-payroll rules have been in force for just over one year, and we have received overwhelming evidence that they have failed in their objective to tackle false self-employment and tax avoidance by off-payroll workers within the public sector.
Not only have they failed, but they are also adding to the taxpayers’ burden, rather than generating extra revenues.
So, for how much longer must we all pay for the government’s tax avoidance headline: contractors are paying with their livelihoods and lost opportunities; taxpayers are paying with higher taxes and lower quality public services; and the nation as a whole is paying in terms of lost opportunity and productivity?
The only ‘benefit’ of the whole fiasco has been for the prime minister, the chancellor and the coalition government to have a ‘tough on tax avoidance’ headline – and even that was only fleeting.
So, based on what we’ve been told by contractors working within the public sector and freedom of information documents we have obtained, this is what we can conclude the off-payroll rules have achieved over 12 months:
- In breach of UK Border Agency guidelines, non-European workers on intercompany transfers have displaced UK contractors, taking away their livelihoods through unfair competition
- A drop in tax revenues – non-EU workers are likely to be paying less tax than their limited company contractor predecessors, if they are paying tax in the UK at all
- A brain drain of contractor skills forced out of the public sector as a result of the off-payroll rules is depriving the public sector of essential skills required to implement public service delivery programmes
- The damage the public sector ‘brand’ has suffered as a result of the exercise will impact on public sector clients’ ability to hire the highly skilled contingent labour essential to resolving the conundrum of maintaining or improving public services at the same times as working within austerity budgets
- The impact of the brain drain may not be felt so much now, but will result in poorer quality public services down the line when these major projects are completed
- Contrary to their original objectives, the off-payroll rules have cost the taxpayer money, not generated additional revenues
- The cost of implementation has been high, with dedicated resources within some departments being diverted from core activities in order that the rules can be implemented
- Alongside falling or zero tax revenues from non-ICT replacements for terminated contractors, implementing the off-payroll rules has cost far more than any tax generated.
- The anti-business rules have unfairly forced contractors who remain within the public sector to operate within IR35, use an umbrella company or go on the payroll.
The rules themselves were, as ContractorCalculator publicly predicted a year ago, bound to be counter-productive. But they have been made worse by poor HMRC guidance to public sector bodies.
Not all the blame can be laid at the door of the taxman; much must be shared with the architects of the rules, which include the Public Accounts Committee, and specifically its chair Margaret Hodge, various Treasury ministers and the Cabinet Office.
But if it were not for the strategy of being deliberately vague which HMRC applies to the broader taxpaying community, the off-payroll rules might have worked to some small degree. Instead, they have caused possibly irreparable damage to our public services and the livelihoods of those underpinning one of the UK’s most valuable industrial assets, the flexible workforce.
So, how much did that fleeting coalition headline cost the taxpayer, contractors and our nation as a whole? And how much longer do we all have to keep paying for it in order that the government can save face by not having to do another U-turn?