PCG is “very concerned” about the false self-employment legislation proposed following the Autumn Statement. It has already contacted senior HMRC officials to seek “clarity over what the impact would actually be” on limited company contractors.
This is according to PCG’s senior public affairs adviser Andy Chamberlain, who told ContractorCalculator: “We interpret it as a dangerous proposal which could disrupt the way freelancers engage with clients through agencies.”
PCG’s response follows the publication of the Onshore Employment Intermediaries: False Self-Employment consultation and draft legislation in the Finance Bill 2014.
If the legislation is adopted as drafted, contractors working via agencies face having income tax and National Insurance Contributions (NICs) deducted at source for all agency assignments.
HMRC remains tight-lipped
“Before taking action, we need to really understand what the legislation would mean in practice,” continues Chamberlain. “We’ve put in calls to senior HMRC officials to lay out our concerns but so far have had no response.
“We are also seeking reviews from other independent tax experts, including EY, and are engaging with fellow non-HMRC members of the IR35 Forum to understand their position.”
We interpret it as a dangerous proposal which could disrupt the way freelancers engage with clients through agencies
Andy Chamberlain, PCG
The next scheduled forum meeting takes place after the consultation response deadline, and ContractorCalculator understands that an additional meeting, or further dialogue, will be required before the February 2014 deadline.
Who is the target of these measures?
Chamberlain agrees with the view proposed by Egos’s Roger Sinclair, which is that the government and HMRC do not appear to fully understand who they are targeting with the legislation
“There is confusion around [the targets]. [HMRC] clearly have an idea in their heads but have not explained it clearly in the proposal document,” he notes. “When I spoke to them after the Autumn Statement, they said they were looking at structures where a whole group of workers are moved into mass self-employment.”
Chamberlain believes HMRC designed the measures not to tackle limited company contractors, but the problems caused by more vulnerable workers. “If the proposals are supposed to help vulnerable workers to avoid losing their employment rights, then we would fully support these measures.
“But there must be a clear line between those forced into self-employment and those highly skilled knowledge workers who have chosen to become contractors, and any legislation to protect vulnerable workers should not apply to freelancers.”
PCG’s initial interpretation
“Subject to responses we receive from the experts we have contacted arriving in the coming days,” says Chamberlain, “our primary concern is that the legislation seems to be saying that there will be a burden of proof on the agency to show that the worker is not under the direct supervision and control of the client.
“If that’s correct, then quite often the agency will be unable or unwilling to demonstrate a lack of control and will therefore default to operating Pay As You Earn (PAYE) on all payments they make, including to limited company contractors.”
Chamberlain is concerned that being paid like an employee will undermine the way contractors operate and their self employed status, which he believes is really important to the way that freelancers work and deliver services.
“If you are being paid as if you are an employee, then it begs the question: are you an employee of the agency? You’re supposed to be an expert with the skills and experience to deliver a project without being told what to do. If you muddy that status by putting someone on PAYE, that can derail the contractor’s ability to deliver their services.”
Fortunately, this is so far just a consultation
As Chamberlain explains, the proposals are just that, proposals, and there is a consultation to work through before enacting any legislation: “To be fair to HMRC, this is just a consultation and some of the questions it asks are ‘have we got this right’ and ‘are we proposing something that has an impact further than we were intending’.
“It seems like HMRC is being fairly open, and in the past when organisations such as PCG have put concerns to them, the response has been ‘Oh, we had not realised that’, and HMRC’s approach has changed as a result.
But he remains concerned: “We would certainly say that HMRC has not considered the commercial ramifications of what is being proposed.”
PCG’s next steps
Chamberlain confirms that PCG will be taking robust action to ensure the legislation as it is drafted does not become law in April 2014: “Naturally, we will be responding in full to the consultation. We have taken our concerns directly to senior HMRC officials and will continue this dialogue.
He concludes: “PCG has already been in contact with other concerned stakeholders, including those on the IR35 Forum, and we will develop additional strategies as we receive further information from our advisers and tax experts.”