Up to 300,000 construction contractors could overnight be deemed to be employees, in a move that could be the opening salvo in a Blitzkrieg-style attack on all UK contractors.
The current administration in the UK has never seemed comfortable with the concept of people being in business as contractors. There is a sense that if you are not a permanent employee, you are a deviant and your activities should be criminalised.
Indeed, criminalising contractors effectively happened in 2000, when the then Chancellor Gordon Brown introduced IR35. Yet even under IR35, most genuine contractors can still justify their status as self-employed and in business on their own account.
But the frightening provisions proposed in the Treasury’s latest consultation could sweep huge numbers of construction contractors into employment. According to the Treasury’s own estimates 300,000 contractors could be affected.
They would have no rights to appeal to a higher authority against their unwanted and unworkable employment status. And that status would be forced on them, whatever their actual working relationship with their client and no matter what their own wishes happen to be.
To cap it all, in a move that will be familiar to IR35 watchers, these contractors would suddenly find themselves being taxed as employees, but without receiving any employment rights in exchange.
If a government can arbitrarily impose employment status on an entire sector of the economy, as it proposes to do with this new construction sector legislation, then genuine contractors in every other sector are potentially all under threat.
Also, if the government is genuinely seeking a fairer tax regime, applying a ‘sticking plaster’ in the form of the tests of self-employment that demonstrate a laughable ignorance of how the construction sector works, will create the sort of mess we have seen with IR35. In fact, it would be much worse, because those affected won’t be allowed to defend themselves and build up favourable case law to guide and protect other contractors, as has happened with IR35.
The proposed tests require that a construction contractor providing labour only services must do one of three things to remain self-employed: hire their own plant, buy their own materials or employ others. Are we to see IT contractors having to demonstrate they purchase server farms to maintain their ‘in business’ status? Will oil and gas contractors have to pop the odd offshore drilling platform into their annual accounts to prove they are not employed? And should interim managers expect to have to hire a pack of consultants?
IR35 has generated a significant amount of additional revenue for the Treasury. It has also spawned an industry sub-sector that employs tens of thousands. Case law has built up to the point where genuine contractors don’t have to worry night and day that HMRC will come knocking.
But over almost 10 years it has taken a huge toll in terms of cost, money and stress for contractors to get to the current situation, which is nevertheless still highly unsatisfactory.
This latest Treasury consultation shows that government understanding of the contracting sector has not moved on since 2000. And there is every risk that yet another poorly thought through and inappropriate set of tax laws – this time targeting construction workers – could soon come into force.
And sure as night follows day, if this legislation does get through it will be adapted to target other contractors. But there is a little time for you to have your say. Contractors from all disciplines are urged to respond to the Treasury’s consultation before 12 October.