Nixon Williams

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COVID-19 should forever kill HMRC’s bulls**t concept of ‘deemed employment’

The coronavirus pandemic has plunged the UK into an unprecedented crisis. As the nation gets to grips with the urgent task of protecting the population, the virus has also laid bare the flaws and anomalies within Government’s treatment of the self-employed, and in particular the exploitative notion of ‘deemed employment’.

Warren Buffett famously said: “Only when the tide goes out do you discover who’s been swimming naked”. Though the tide is yet to recede from the tsunami of coronavirus infections throughout the UK, it’s already evident that HMRC has been well and truly exposed, and it’s not a sight that any of us wanted to see.

HMRC has spent the past few years pooling money and resources into a private sector rollout of the Off-Payroll legislation. Many Government cabinet ministers were on board with the proposals and had evidently been briefed by the taxman on how to avoid the pressing issues arising as a result of this unjust legislation.

On April 6 2020, HMRC expected a wave that would carry thousands of self-employed into ‘deemed employment’, subjecting them to excessive taxation without the requisite rights. Instead, unforeseen circumstances temporarily brought back the tide, causing a postponement to the proposals and an indirect admission that they would have severely exacerbated conditions for an already inadequately supported self-employed sector.

Vulnerable self-employed under attack from Off-Payroll

There has never been a starker reminder of the risks that the UK’s self-employed are exposed to than the coronavirus outbreak. The marginally favourable tax treatment that limited company contractors used to experience was once considered fair exchange for the lack of security and employment rights that they endured.

However, over recent years, Government has clawed back much of the tax advantage through dividend tax hikes. Apparently still dissatisfied with matters, HMRC has attempted to introduce ‘deemed employment’ to the masses through Off-Payroll. This legislation is contrived in such a manner that clients are encouraged to assess their contractors ‘employed for tax purposes’ in a bid to mitigate their own tax risk.

Through this contrived arrangement, ‘zero rights employment’ threatens to become widespread, subjecting the genuinely self-employed to tax frequently in excess of that paid by their permanent counterparts, while affording them none of the rights that their tax status warrants.

Absurd HMRC excuses slammed by Lords

This arrangement is indisputably unjust and further victimises the vulnerable self-employed that separate Government initiatives have sought to support. HMRC and the Treasury have spent much of the past couple of years avoiding the issue by arguing that while ‘it is fair that two people working as employees pay broadly the same tax and NICs, there is no direct link between employment status for rights and employment status for tax’.

When questioned on the issue in Parliament earlier this month, the taxman’s latest catchphrase was echoed by Financial Secretary to the Treasury Jesse Norman, who went onto suggest: “Those who wish to challenge their employment status for rights can take their case to an employment tribunal, regardless of their tax status.”

The notion that contractors deemed ‘employed for tax purposes’ should have to challenge their clients in court to secure the employment rights that are readily available to their permanent colleagues is utterly ridiculous.

This is seemingly apparent to all bar those within the finance and tax authorities. Indeed, when attempting to defend the policy before the House of Lords Finance Bill Sub-Committee, HMRC Off-Payroll reform programme director Cerys MacDonald was accused by Baroness Kramer of living in another world.

Where is the support for the UK’s self-employed?

The Lords aren’t the only ones to observe that the most vulnerable workers in society are the self-employed. MPs were quizzed on the meagre support offered to the self-employed during last weekend’s Question Time, while the issue has been picked up by numerous national papers this past week. It’s just a shame that it has taken a global pandemic for this issue to be cast firmly in the public eye.

Though evident throughout its dealings with limited company contractors over recent years, Government’s scant regard for the self-employed was again underlined when the sector was all but omitted from Chancellor Rishi Sunak’s ‘emergency rescue package’ last week. While Government has pledged to fund 80% of employee wages up to £2,500 per month, the self-employed currently have to make do with the deferral of self-assessment tax requirements and the strengthening of the welfare “safety net”.

But whereas Government is expected to address its miserly offering to the 5m self-employed in the coming days, there are no such indications that the Off-Payroll legislation will be reconsidered in light of the current pandemic, despite the private sector delay.

The irony is that the sector tasked with steering the UK out of this crisis is already severely hampered by the Off-Payroll legislation. The NHS is heavily reliant on locum doctors and nurses and trusts are facing intensified recruitment struggles as a result of the draconian measures applied in the public sector.

COVID-19 exposes HMRC’s Off-Payroll malpractice

If there’s one positive to come out of COVID-19, it’s the timing. If this crisis were to occur several months later with the Off-Payroll legislation already underway in the private sector, hundreds of thousands of genuinely self-employed would be out in no man’s land.

Those forced into ‘deemed employment’ arrangements by clients seeking to avoid the tax liability risk threatened by Off-Payroll would already have been cast adrift with no employment rights to support them, many having already lost a substantial chunk of their earnings to an unlawful double tax charge.

Our Stop the Off-Payroll Tax campaign has consistently highlighted the issue of ‘deemed employment’ and the unfair ‘zero rights employment’ arrangements that it generates. In case Government hasn’t figured it out, the remedy is simple; if firms want to hire ‘deemed employees’, they should do so on an employment contract. They should not be afforded a workaround by legislation that promotes unlawful behaviour at the expense of the UK’s most vulnerable self-employed.

COVID-19 has pulled back the tide on HMRC’s two decade-long policy of creating ‘deemed employees’. The taxman has been found floundering stark naked, and the embarrassment of the policy is evident for all to see. Teed up by the Lords, the 12-month delay, as things stand, has merely been implemented to save HMRC’s blushes. When things finally revert back to normal, this illogical, exploitative policy must be finally swept out to sea itself.

Published: 26 March 2020

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