Successful public sector contractors genuinely in business deserve recognition for their contribution. They certainly shouldn’t be subject to the current government and media driven witch-hunt aimed at forcing a change to their legitimate limited company trading structures.
So says ContractorCalculator CEO Dave Chaplin in response to ongoing attacks by government ministers and the media on the use of limited company contractors in the civil service.
“Contractors bring vital skills to the UK’s public sector and flexibility to the UK’s economy,” says Chaplin. “If there are any cases of disguised employees working through limited companies, then mechanisms like IR35 are already in place to control any abuses. So, if those fulfilling civil service roles weren’t genuine contractors, HMRC could jump on them and tax them as employees.”
Call for greater understanding of contracting’s contribution
Contractor organisations have responded to media reports by drawing attention to the benefits of using contractors. ContractorCalculator was the first to point out how an overreaction to the current political and media spotlight might backfire and damage the UK’s growth prospects, the public sector’s performance and the limited company contracting sector.
PCG has also called for a more nuanced approach, with Chairman Chris Bryce saying: “We must ensure we do not create an orchestrated witch-hunt against the nation’s smallest businesses that will damage public and private sector growth in the UK. One-person businesses are a legitimate model and the labour market flexibility they provide is vital to the economic recovery of this country.”
We must ensure we do not create an orchestrated witch-hunt against the nation's smallest businesses that will damage public and private sector growth in the UK
Chris Bryce, PCG
Stuart Davies, Chairman of the Freelancer and Contractor Services Association (FCSA), points out there is nothing wrong with the government using contractors at any level within the civil service: “Contracting work is undertaken by thousands of workers up and down the UK and is a legitimate and valuable way of working that benefits both employers and employees, and generally the competitive elements of the UK economy, which are recognised as necessary for recovery and growth.”
Key organisations outside the contracting sector have also weighed in, in favour of using contractors. For example, ratings agency Moody’s has specifically acknowledged the value of the UK’s interims and contractors. On putting the UK’s credit rating on a negative outlook last week, it went on to say that the UK “continues to be well supported by ... a particularly flexible labour market.”
The tools for identifying disguised employees already exist: IR35
Chaplin, who contributed to the 2011 consultation by the Office of Tax Simplification (OTS) into the future of IR35, points out that: legislation is already in place to deal with instances of trading via a limited company being used for tax avoidance purposes.
He says: “Before interim contractors on assignment with the civil service have their contracts breached and are forced to become employees against their will, these small business owners’ IR35 status should be investigated and correctly assessed by HMRC. Why should legitimate government suppliers be subject to a trial by the media and politicians?”
In several IR35 rulings last year contractors under investigation for many years were found to be outside IR35, an therefore not the disguised employees they were accused of being
Dave Chaplin, ContractorCalculator
Chaplin adds that there are complexities to IR35 that mean a contractor may superficially appear to resemble an employee, but further investigation reveals quite the opposite: “In several IR35 rulings last year contractors under investigation for many years were found to be outside IR35, and therefore not the disguised employees they were accused of being.”
Misunderstanding of contracting extends to tax and employment law
From statements by senior politicians and union leaders, and by the media itself, the lack of understanding about how tax and employment law apply to the flexible workforce is acute. The Daily Telegraph’s Rowena Mason even suggested that OTS advisor Angela Williams is a “new example” of how “civil servants are lowering their tax bills by being paid as companies”, despite Williams’ status as an independent accountant.
And condemnation from both government and the opposition has been swift and vocal, with Kiran Stacey reporting in the Financial Times that one of Chancellor George Osborne’s aides said: “We are rooting out the inappropriate use of private service companies for people who are [in effect] working as employees. We are going to put a stop to it.”
PCG’s Bryce has warned against “hysteria being introduced into the debate”, saying: “The government is right to look closely at how public servants are being remunerated and where there is disguised employment or tax evasion it should be stopped and fully investigated by HMRC. However, it is fundamentally inaccurate to brand all one-person limited companies as employees attempting to avoid tax.”
Chaplin’s fear is that it is ultimately taxpayers who will be the losers, because costs will increase, skills will be lost and quality of service delivery in the public sector will fall. “The government’s view on hiring vital contractor talent may be changed irrevocably". He concludes: “That would harm all of us, simply for the sake of generating a ‘media storm’ and for political grandstanding.”