Contractors and other contingent workers were facing the grim possibility of being forced onto their clients’ payrolls after only one month working for the same client following changes to IR35 leaked to the national media a week before the Autumn Statement. Thankfully, the leaked proposals did not materialise as a solid legislative change in the Chancellor’s Autumn Statement 2015 or in the Finance Bill 2016.
If it had, it would have spelled disaster for the UK’s collaborative economy. It would have halted the progress of Outsourcing 2.0, the drive to outsource at a more granular level facilitated by freelance marketplaces such as PeoplePerHour, Freelancer.com and Upwork (formerly elance/odesk). These businesses would struggle to exist if a worker had to go on the payroll after a month working for a client.
The collaborative economy, which is underpinned by contractors and freelancers, is the natural evolution of outsourcing. Originally, Outsourcing 1.0 meant getting non-core processes and activities done better and often cheaper by an organisation whose core activities are your non-core activities. It evolved into engaging cheaper workers usually overseas, such as IT developers in India.
Outsourcing 2.0 is like version 1 but at a more granular level. Instead of offshoring the entire finance department to Bulgaria (although that does still happen), instead it is finding part-time and/or contingent workers to complete specific niche tasks. It’s like renting highly specific skills only when you need them.
So, for example, we needed a developer to write a wrapper around the Google Analytics API. Before contractors and freelancer marketplaces were around, the old way of doing this would be to ask your senior programmer on £500 a day to take a look at it, learn all the technology and create a solution.
The process could take weeks, when you really needed the solution now. Instead, we can simply go online and find someone who specialises in that area, has done it before and can provide a bespoke solution for £250 instead of £5000.
This scenario has evolved even further. Contractors and freelancers working together and closely with clients both large and small, via personal networks and online skills marketplaces underpin the growth of the business-to-business collaborative economy.
But put IT developers on the payroll after a month, or even six months, and that fantastic level of productivity, quality and efficiency is lost. Can you imagine how uncompetitive that would make UK firms and the impact it would have on the economy?
The jester in the Treasury or HMRC who leaked the proposals to force contractors into Pay As You Earn (PAYE) after a month would not be laughing quite so much as foreign direct investment (FDI) plummeted and UK firms’ exports stalled because we suddenly became hugely expensive and unproductive.
Fortunately, we’re not facing that future right now, and not for another 12 months, according to what HMRC told the IR35 Forum during the most recent meeting on 15 December 2015.
However, IR35 is still with us and HMRC will be itching to do something with the results of the Intermediaries Legislation (IR35) discussion document. So, contractors should continue to operate as if IR35 is a very real threat, which it is, maintaining IR35 best practice and all that entails.
And the collaborative economy continues to grow, providing even more opportunities for contractors for as long as the Government continues to leave it, and contractors, well alone.